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CHAIN  STORES 


H^Qraw-O-fill Book  (h  Jne. 

PUBLISHERS     OFSOOKS      F  O  I^_/ 

Electrical  World  "^  Engineering  News -Record 
Power  V  Engineering  and  Mining  Journal-Press 
Chemical  and  "Metallurgical  Engineering 
Electric  Railway  Journal  v  Coal  Age 
American  Machinist  ^  Ingenieria  Intemacional 
Electrical  Merchandising  v  BusTransportation 
Journal  of  Electricity  and  Western  Industry- 
Industrial  Engineer 


CHAIN  STORES 

THEIR  MANAGEMENT  AND  OPERATION 


BY 
WALTER  S.  HAYWARD,  A.  M. 


RESEARCH  ENGINEER 


AND 


PERCIVAL  WHITE,  A.  M. 

BBSBABCH   ENGINEER,   AUTHOR   OF  "MARKET  ANALYSIS,   ITS  PRINCIPLES  AND   METHODS* 

With  chapters  by 
JOHN  S.  FLEEK,  M.  B.  A. 
AND 
H.  MAC  INTYRE 


First  Edition 
Second  Impression 


McGRAW-HILL  BOOK  COMPANY,  Inc. 
NEW  YORK:  370  SEVENTH  AVENUE 

LONDON:  6  &  8  BOUVERIE  ST.,  E.  C.  4 

1922 


Copyright,  1922,  by  the 
McGkaw-Hill  Book  Company,  Inc. 

printed  in  the  united  states  of  america 


THE  MAPLE  PRESS  -  YORK  PA 


PREFACE 

The  purpose  of  this  book  is  to  set  forth  the  principles  of  chain 
store  operation,  organization,  management,  and  control.  It  is 
intended  not  only  for  the  use  of  the  executive  at  chain  store 
headquarters,  but  it  is  also  particularly  addressed  to  the  branch 
store  manager  and  his  assistants.  Furthermore,  it  is  hoped  that 
the  book  will  prove  stimulating  to  independent  retailers  and  to 
others  who  are  interested  in  the  possibilities  offered  by  the  chain 
store  movement. 

In  the  opinion  of  the  authors,  this  movement  is  characteristic 
of  all  that  is  best  in  tendencies  towards  combination  and  scientific 
control.  It  is  thoroughly  American.  It  stands  for  scientific  man- 
agement as  applied  to  the  great  function  of  retail  merchandising. 

Although  this  movement  is  still  in  its  infancy,  the  chain  store 
is  probably  the  most  highly  developed  exemplar  of  modern 
distribution  methods. 

The  first  chapter  is  offered  as  a  brief  summary  of  findings,  the 
intention  being  to  give  the  reader  a  perspective  of  the  subject 
before  he  comes  to  the  more  specific  and  detailed  examination  of 
the  various  phases  of  the  problem. 

As  a  further  means  of  clarifying  the  reader's  ideas,  an  outline  is 
placed  at  the  head  of  each  chapter,  setting  forth  its  main  points 
in  topical  form.  It  is  hoped  that  these  outlines  will  prove  valu- 
able for  anyone  desirous  of  obtaining  in  the  most  direct  fashion  a 
comprehensive  knowledge  of  the  subject. 

Without  the  assistance  of  many  friends  it  would  have  been 
impossible  to  complete  this  work.  In  addition  to  those  men- 
tioned in  the  text,  grateful  acknowledgment  is  made  to  the 
following  for  their  assistance : 

Messrs.  F.  B.  Barton,  of  Akron,  Ohio,  Robert  M.  Updegraff, 
of  the  Displays  Company,  New  York  City,  Malcolm  P.  McNair, 
Instructor  in  Marketing,  Prof.  Donald  K.  David,  Assistant 
dean  and  assistant  professor  of  marketing.  Graduate  School  of 
Business,  Harvard  University,  Philip  Remington,  Lyman  Armes, 


VI  PREFACE 

of  Wood,  Putnam  &  Wood,  Allen  Wood,  of  Wood,  Putnam  & 
Wood,  Alden  C.  Kenyon,  of  Wood,  Putnam  &  Wood,  Frederick 
J.  Mullen,  of  the  Boston  News  Bureau,  Philip  Burbank,  of  the 
H.  B.  Humphrey  Advertising  Agency,  Mort  Hamburger,  of  the 
Federal  System  of  Bakeries,  Charles  Coolidge  Parlin,  of  Curtis 
Publishing  Company,  H.  C.  Parson,  president  the  Woolworth 
Co.,  Charles  E.  Merrill,  of  Merrill,  Lynch  &  Co.,  W.  T.  Grant, 
president  of  the  W.  T.  Grant  Company  Department  Stores, 
Benjamin  F.  Meyers,  editor  of  The  Haberdasher,  Harold  Snyder, 
of  Spear  and  Company,  New  York  City,  S.  H.  Ditchett,  editor 
of  the  Dry  Goods  Economist,  Alexander  New,  president  of  the 
Mercantile  Stores  Corporation,  Inc.,  Alfred  H.  Beckmann, 
secretary-treasurer  of  the  National  Chain  Store  Grocers' 
Association,  Paul  J.  Mandabach,  editorial  director,  Drug  Store 
Merchandising  and  Confectionery  Merchandising,  B.  B.  Wilson, 
associate  editor.  The  Music  Trade  Review,  E.  Hubbard,  associate 
editor.  The  American  Hatter,  Richard  D.  Wyckoff,  J.  B.  Levey, 
general  sales  manager.  United  Shirt  Shops,  Wm.  Henry  Smith, 
of  the  United  Shoe  Machinery  Corporation,  H.  J.  Schuell, 
general  manager.  The  Druggists  Circular,  H.  B.  Hanser,  assistant 
general  manager.  The  Variety  Goods  Magazine,  Bertrand  L. 
Chapman,  manager  of  Merchandising  Department,  the  New 
York  World,  Kingman  Brewster,  attorney,  D.  Walter  Morton, 
Educational  Department,  J.  C.  Penney  Co. 

Thanks  are  also  due  to  Mrs.  Walter  S.  Hayward  for  the  prep- 
aration of  illustrations  and  for  editorial  assistance,  and  to  Charles 
G.  Wheeler  for  his  invaluable  help  in  reading  manuscript. 

F.  J.  Arkins  of  the  Alexander  Hamilton  Institute  has  been  of 
great  assistance,  not  only  in  supplying  bibliographical  data  but 
in  actual  constructive  suggestions  and  reading  proof. 

As  it  is  the  intention  of  the  authors  to  keep  this  book  up-to- 
date,  they  would  appreciate  suggestions  from  readers  calculated 
to  be  of  assistance  in  making  revisions. 

Walter  S.  Hayward. 
Percival  White. 
New  York,  N.  Y., 
May  15,  1922. 


CONTENTS 

Paqk 

Preface v 

INTRODUCTORY 
Chapter 

I.  The  Principles  op  Chain  Store  Operation 1 

II.  The  Chain  Store  Field 16 

PHYSICAL  ASPECTS 

III.  Locating  the  Store 31 

IV.  The  Member  Store 55 

MERCHANDISING  PROBLEMS 

V.  Purchasing 71 

VI.  The  Warehouse 84 

VII.  The  Sales  Problem 97 

VIII.  Competition 115 

IX.  Pricing  and  Turnover 129 

X.  Expenses  and  Profits 145 

XI.  Advertising 162 

PERSONNEL 
XII.  Organization 181 

XIII.  Training  Men  for  Promotion 197 

XIV.  Maintaining  Morale 218 

XV.  The  Store  Manager 232 

CONTROL  AND  EXPANSION 

XVI.  Warehousing  and  Purchasing  Records 243 

XVII.  Supervision  of  Retail  Outlets 264 

XVIII.  Centralizing  Executive  Control 281 

XIX.  Financing  and  Growth 294 

XX.  Insurance 309 

VARIETIES  OF  CHAIN  STORES 

XXI.  The  Manufacturer's  Chain 318 

XXII.  The  Grocery  Chain 330 

XXIII.  The  Drug  Store  Chain !    ...  342 

XXIV.  Five-Ten- Twenty-Five-Cent  Store  Chain 363 

XXV.  Drygoods  and  Clothing  Chains 374 

XXVI.  Other  Chain  Fields 385 

Bibliography 393 

vii 


CHAPTER  I 
THE  PRINCIPLES  OF  CHAIN  STORE  OPERATION 

Outline 

Chain  store  principles  of  four  kinds. 

1.  Physical  aspects  of  store  location  and  construction. 

2.  Methods  of  operation. 

3.  Men. 

4.  System  of  control  and  coordination. 
Physical  aspects. 

1.  Locate 

(a)  According  to  analysis  of  product. 

(b)  According  to  analysis  of  traffic. 

2.  Standardize. 

(a)  Appearance  of  store. 


1. 

Store  front. 

2. 

Size. 

3. 

Stock. 

4. 

Window  trims. 

Methods. 

1.  Purchase 

(a)  At  headquarters 

(b)  Direct  from  manufacturer. 

(c)  For  cash. 

(d)  Enough  and  no  more. 
The  warehouse 

(a)  Keep  adequate  and  fresh  supply  of  stock. 
(6)   Fill  orders  with  speed  and  accuracy  from  well-arranged  stock, 
(c)   Keep  warehouse  overhead  down  by  standardization  of  method. 
Sales  methods. 

(a)  Suit  product  to  wants  of  community. 

1.  Carry  only  standard  sizes. 

2.  Avoid  style  articles. 

(6)   Mark  prices  in  accordance  with 

1.  Cost  to  chain. 

2.  Overhead  expense. 

3.  Sales  expense. 

4.  Necessary  profit. 

(c)    Keep  every  line  turning  at  a  profit. 
Eliminate  unnecessary  expenses. 
(a)  Conduct  business  on  cash  basis. 

1 


2  CHAIN  STORES 

(b)   Charge  extra  for  deliveries. 
5.  Take  advantage  of  benefits  of  publicity. 

(a)  Display. 

(6)  Advertising. 
Men. 

1.  Choose  men  carefully 

(o)  Who  have  interest  in  work. 

(b)  \\Tio  show  signs  of  promise. 

2.  Train  men  carefully. 

(a)  Start  at  bottom  and  work  up. 

3.  Pay  personnel  adequately. 

(a)  By  some  form  of  bonus  on  sales,  profits,  etc. 

4.  Promote  men  on  merit  alone. 

5.  Maintain  morale 

(a)  By  discipline. 
(6)    By  infusing  spirit  of  goodwill. 
Control  and  coordination 

1.  Keep  careful  and  complete  records 

(a)  Of  warehousing  and  purchasing. 
(6)  Of  overhead  expenses. 

(c)  Of  independent  store  statistics. 


CHAPTER  I 
THE  PRINCIPLES  OF  CHAIN  STORE  OPERATION 

What  is  a  chain  store?  This  term  is  generally  applied  to 
a  group  of  two  or  more  retail  stores,  dealing  in  the  same  line 
of  goods,  and  under  the  same  central  management.  Each  store, 
although  a  separate  unit,  has  certain  features  in  common  with 
the  rest,  whether  in  purchasing,  merchandising,  or  accounting. 
The  degree  of  independence  possessed  by  the  individual  stores 
varies  from  almost  complete  independence,  as  in  some  dry  goods 
chains,  to  the  closest  inter-dependence,  in  those  cases  where  the 
manager  is  hardly  more  than  a  head  clerk. 

How  does  a  branch  house  differ  from  the  chain  store?  In  many 
cases  this  is  hard  to  define  since  the  ordinary  branch  store  is  in 
reality  a  chain  store.  The  term  "branch"  is  frequently  applied 
to  the  several  links  of  a  manufacturer's  chain.  An  independent 
retailer  with  two  or  three  stores  commonly  calls  them  "branches," 
although  they  are  in  reahty  members  of  a  chain. 

An  agency  is  not  a  chain  store,  although  frequently  this  term 
is  applied  to  such  organizations  as  the  United  Drug  Co.'s 
agencies.  A  "Rexall"  store,  it  is  true,  handles  the  manufactured 
products  of  the  United  Drug  Co.,  but  there  is  no  executive 
control.  The  individual  agency  is  an  entity  in  itself  and  is  self- 
governing.  No  chain  store  can  ever  run  counter  to  the  policy 
of  the  organization  to  which  it  belongs. 

In  discussing  the  general  principles  on  which  chain  stores 
are  conducted,  it  is  difficult  to  include  only  methods  and  policies 
of  unique  application.  Many  of  these  principles  can  be  applied 
equally  well  to  an  independent  retailer.  In  the  last  analysis,  a 
chain  is  nothing  more  than  a  collection  of  retail  stores  dealing  in 
the  same  products  and  guided  by  the  same  policies,  profiting  by 
the  same  economies  and  correcting  the  same  mistakes. 

The  principles  of  chain  store  operation  may  be  divided  into 
four  sections,  the  first  dealing  with  conditions  already  existing, 
the  second  with  merchandising  policies,  the  third  with  chain 

3 


4  CHAIN  STORES 

personnel,  and  the  fourth  with  the  control  of  chain  activities 
through  records  and  statistics  and  the  interpretation  and 
application  of  these  data. 

The  Physical  Aspects. — Under  this  first  heading  come  all  those 
factors  which  are  outside  the  power  of  the  chain  to  create  but  by 
which  it  can  profit  if  it  will  take  advantage  of  them.  Of  all  the 
principles  involved  these  are  perhaps  the  most  fundamental 
because  they  deal  with  unalterable  facts.  The  correct  location 
of  a  store,  for  example,  is  always  an  essential  factor.  Again, 
there  is  a  size  for  a  store  which  is  just  right  to  accommodate  its 
traffic  and  trade.  Anything  larger  would  be  waste;  anything 
smaller  would  be  inefficient. 

These  physical  aspects  are  known  conditions,  possible  to 
estimate  and  forecast.  The  man  who  first  put  them  to  practical 
use,  George  J.  Whelan,  became  a  millionnaire.  The  example  of 
success  is  irresistible.  Today,  all  scientifically  managed  chains 
realize  that  the  physical  aspects  of  retailing  must  be  reckoned 
with.  If  no  use  is  made  of  location,  then  some  other  method, 
notably  advertising,  must  be  used  to  attract  trade  . 

There  are  three  steps  involved  in  the  problem  of  locating 
a  store. 

1.  Analyze  the  product. 

2.  Analyze  the  locality. 

3.  Analyze  the  traffic. 

There  is  a  proper  site  for  the  store  and  it  can  be  found  by  using 
this  method.  If  the  products  to  be  sold  are  mainly  convenience 
goods,  that  is,  goods  which  are  the  same  wherever  purchased, 
such  as  cigarettes,  groceries,  notions,  etc.,  the  site  should  be  on 
the  stream  of  traffic.  If  the  products  are  "shopping  lines," 
or  if  there  is  something  in  the  article  or  the  service  which  will 
induce  people  to  leave  their  accustomed  path  to  purchase,  the 
store  may  be  away  from  usual  traffic.  But,  in  this  event,  it 
must  resort  to  publicity  and  advertising  to  acquaint  people  with 
what  it  has  to  offer. 

Next,  analyze  the  locality.  Who  are  to  be  your  neighbors? 
What  do  they  sell?  A  five  and  ten  cent  store  can  be  found  close 
to  the  department  store  hke  the  pilot  fish  by  the  shark.  Which 
side  of  the  street  is  the  shady  side?     Women  prefer  it. 


THE  PRINCIPLES  OF  CHAIN  STORE  OPERATION  5 

Last  of  all,  analyze  the  traffic.  Note  the  number  of  passers- 
by  and  the  direction  in  which  they  are  going.  Note  the  hours  at 
which  this  traffic  is  heaviest  and  the  relative  number  of  women 
and  men  of  which  it  is  composed.  Last  of  all,  note  the  character 
of  the  traffic.  Is  it  mainly  composed  of  men  and  women  going 
to  and  from  work?  Of  shoppers?  Of  commuters?  What  is 
their  rank  and  station?  It  is  the  buying  power  of  the  traffic 
which  we  must  determine. 

Thus,  the  first  principle  of  chain  store  operation  is  to  locate  the 
member  stores  in  relation  to  the  nature  of  the  products  to  be  sold, 
the  character  of  the  locality,  and  a  careful  analysis  of  the  traffic. 
There  is  a  right  place:  find  it. 

The  second  principle  is  to  suit  the  store  itself  to  the  product, 
the  locality,  and  the  traffic. 

Take  advantage  of  the  principles  of  display.  Design  a  store 
front  in  harmony  with  the  character  of  the  organization  and  the 
localities  in  which  it  sells.  Make  the  exterior  of  the  store  com- 
bine with  the  location  to  act  as  a  drawing  attraction  for  the 
public.  Make  the  interior  of  the  store  large  enough  to  utilize 
every  inch  of  working  space,  and  no  larger.  Arrange  the  stock 
so  that  it  appears  at  its  best.  Furthermore,  arrange  it  so  as  to 
make  the  most  of  the  points  of  sales  vantage.  Traffic,  in  a  store 
as  well  as  outside,  follows  certain  channels.  And  when  the  "one 
best  way"  for  arranging  a  store  has  been  determined,  the  same 
plan  can  usually  be  used  as  a  model  throughout  the  chain. 

The  window  display  is  one  of  the  most  important  points  in 
the  physical  appearance  of  the  member  store.  More  people  buy 
as  a  result  of  what  they  see  than  for  any  other  reason.  Good 
window  displays,  and  good  table  displays  sell  goods.  And  last  of 
all,  keep  stores  neat  and  attractive.  This  will  create  favorable 
notice. 

The  essence  of  this  part  of  chain  operation  is  to  take  advantage, 
as  far  as  possible,  of  things  as  they  are,  and  of  people  as  they  are. 
This  is  a  study  in  human  nature  and  psychology.  Choose  the 
proper  location  and  your  customers  will  come  to  you. 

Merchandising  Policies. — The  purpose  of  all  chain  store 
policies  is  to  sell  goods  at  a  profit.  As  all  other  retailers  are  in 
business  with  this  same  purpose  in  mind,  it  follows  that  the  most 
efficient  will  be  the  most  successful.     How  is  this  efficiency  to  be 


6  CHAIN  STORES 

obtained?  The  independent  retailer  makes  a  success  by  personal 
supervision  and  by  personal  service.  He  can  vary  his  policy 
to  suit  his  customer.  But  the  chain  is  more  impersonal.  Its 
policies,  like  its  store  fronts,  must  be  standardized.  And 
this  principle  pervades  the  whole  chain  structure.  Appearance, 
arrangement  of  stock,  price,  wages,  everything  is  standardized. 
Instead  of  personal  service,  we  have  standard  practice.  Human 
nature  cannot  be  standardized,  but  almost  everything  else  can. 

The  merchandising  policies  of  a  retail  chain  are  chiefly  con- 
fined to  obtaining  products  of  the  highest  quality  at  the  lowest 
price,  and  selling  as  large  an  amount  of  them  as  possible  at 
the  lowest  expense  and  the  largest  profit  consistent  with  rapid 
turnover. 

Purchasing. — As  far  as  possible,  all  buying  for  the  chain 
should  be  done  at  headquarters.  There  are  several  reasons  for 
this.  In  the  first  place,  the  larger  the  purchase,  the  greater  the 
quantity  discount.  In  the  second  place,  the  purchasing  agent  of 
the  chain  can  buy  direct,  and  in  this  way  save  the  jobbers' 
discount  as  well  as  obtain  the  quantity  discount.  Although 
at  one  time  there  was  much  reluctance  on  the  part  of  manufac- 
turers to  accede  to  this  policy,  there  is  less  objection  offered  at 
the  present  time. 

The  purchasing  agent  of  the  chain,  if  he  is  not  located  or 
directly  represented  at  the  market,  should  go  where  the  article 
he  wishes  to  buy  is,  and  offer  cash  for  it.  If  the  manufacturer 
fears  it  will  be  impossible  to  make  the  goods  to  retail  at  the  price 
the  chain  wishes  to  sell  them  for,  the  purchasing  agent  may  be 
able  to  show  the  manufacturer  how  it  can  be  done.  The  ques- 
tion of  how  much  to  buy  is  a  problem  facing  all  purchasing 
agents,  and  in  the  case  of  the  chain  is  scientifically  determined 
by  records,  as  explained  later. 

The  principles  of  chain  store  purchasing  may  be  summed  up 
under  four  headings : 

1.  All  purchasing  should  be  done  through  headquarters, 

2.  Buy  as  directly  as  possible,  preferably  from  the  source, 

3.  Pay  cash. 

4.  Do  not  overload. 

Overloading,  and  other  evils,  will  be  minimized  by  proper 
executive  control,  and  the  coordination  between  departments. 


THE  PRINCIPLES  OF  CHAIN  STORE  OPERATION  7 

Warehousing. — In  an  effort  to  simplify  distribution,  the  majority 
of  chain  stores  have  taken  upon  themselves  the  warehousing 
function.  That  is,  they  store  all  goods  purchased  and  delivered 
until  such  time  as  they  are  requisitioned  by  the  member  stores. 
This  reduces  freight  charges,  and  gives  assurance  that  goods 
will  be  available  when  needed. 

The  warehouse  must  be  located  with  respect,  first  to  the  routes 
by  which  articles  are  received,  and  second  to  the  position  of  the 
member  stores.  If  the  jobber's  profit  is  to  be  saved  this  is 
exceedingly  important. 

The  main  principles  of  warehouse  management  are  three: 

1.  Maintain  an  adequate  and  fresh  supply  of  stock.  On  this  point 
depends  the  efficiency  of  distribution  to  member  stores.  Articles  listed 
as  being  in  stock  must  actually  be  in  stock.  Of  course,  there  will  be  unavoid- 
able cases  where  goods  will  get  out  of  stock,  but  these  must  be  kept  at  a 
minimum. 

2.  Orders  from  member  stores  must  be  filled  with  speed  and  accuracy. 
If  there  is  any  lapse  in  the  rapidity  of  distribution  lost  sales  will  be  the 
result. 

3.  Expenses  must  be  kept  down.  The  expense  of  warehousing  is  taken 
care  of  in  the  central  organization,  and  it  forms  a  part  of  the  general  over- 
head expenditures.  That  is,  each  store  must  bear  a  certain  percentage  of 
this  cost  of  storing  and  distributing  goods. 

All  stock  in  warehouses  should  be  arranged  logically  with 
consideration  to  the  frequency  with  which  it  must  be  moved 
and  the  actual  labor  of  moving.  Heavy  goods,  for  example, 
should  be  nearest  the  loading  point.  A  regular  position  for  each 
article  of  merchandise  helps  in  speed  of  handling,  and  eliminates 
mistakes.  By  placing  old  goods  in  front,  the  stock  can  constantly 
be  kept  fresh.  In  the  warehouse,  as  in  the  store,  the  layout  may 
advantageously  be  standardized. 

Sales. — Study  the  sales  records  and  take  advantage  of  the 
information  they  have  to  offer.  No  other  documents  are  so 
valuable  or  so  easy  to  read.  Analyze  the  daily  sales.  See  how 
sales  for  Fridays  and  Saturdays  compare  with  those  of  other 
days.  Many  chains  find  that  their  sales  are  almost  double  on 
these  days  and  they  make  preparation  accordingly.  Study  also 
the  influence  of  weather  on  the  volume  of  trade.  Learn  how  to 
distribute  the  seasonal  rush  over  a  period  of  time  in  order  that  no 
sales  may  be  lost  through  overcrowding. 


8  CHAIN  STORES 

Minimize  sales  resistance  by  giving  the  public  what  the 
public  wants.  Sales  resistance  eats  up  profits.  Therefore, 
study  the  product  from  the  sales  angle.  Is  it  in  demand?  Is 
there  another  product  which  the  public  prefers? 

A  chain  organization,  because  of  its  impersonal  character, 
and  the  nature  of  its  organization,  should  stock  only  standard 
goods.  Odd  sizes,  unknown  brands,  style  goods,  are  all  too  much 
of  a  risk,  regardless  of  the  amount  of  the  profit.  The  wise  chain 
store  executive  always  remembers  that  it  is  not  the  length  of  the 
profit  but  the  rapidity  of  the  turnover  which  counts  in  the  long 
run.  And  he,  therefore,  limits  the  number  of  lines  offered  to  the 
public.  He  limits  these,  furthermore,  according  to  the  desires  of 
the  public.  Where  possible,  a  chain  deals  in  packaged  goods. 
There  are  few  successful  chains  dealing  in  bulk  products.  The 
selling  expense  is  too  high. 

The  chain  store  should  cater  to  the  majority  of  its  customers 
and  let  the  few  who  wish  special  services  or  special  products  go 
elsewhere.  The  loss  of  a  few  customers  will  be  more  than  made 
up  by  the  increased  efficiency  in  the  management  of  the  store  and 
the  ability  to  satisfy  the  wants  of  the  great  bulk  of  the  customers. 

Should  a  chain  store  manufacture  and  sell  its  own  private 
brands?  So  many  of  them  follow  this  policy  that  the  idea  has 
almost  become  inseparable  from  that  of  chain  store  operation. 
No  set  rule  on  this  point  can  be  laid  down. 

The  arguments  in  favor  of  private  brands  can  be  reduced  to 
three.  First,  it  allows  the  chain  to  make  extra  profit,  since  it 
permits  a  manufacturing  profit  as  well  as  the  jobbing  and  selling 
profits.  Second,  the  private  brand  is  often  of  immense  adver- 
tising value.  Third,  private  brands  give  the  chain  a  source  of 
supply  independent  of  any  manufacturers.  Against  this,  it  can 
be  argued  that  the  public  as  a  whole  will  ask  for  nationally 
advertised  goods.  The  reply  of  the  chains  is  to  stock  the  nation- 
ally advertised  goods  and  allow  their  own  goods  to  compete  on  a 
quantity  and  price  basis,  the  method  used  being  display. 

Pricing  and  Turnover. — The  retail  price  should  be  uniform  in 
all  stores,  except,  perhaps,  for  a  difference  justified  by  additional 
freight  rates.  This  principle  is  almost  self-evident.  It  would  be 
disastrous  to  the  chain  if  a  customer  were  to  find  that  at  Store 
No.  10  prices  were  different  from  those  at  No.  15.     The  price  of 


THE  PRINCIPLES  OF  CHAIN  STORE  OPERATION  9 

goods  should  be  fixed  when  possible  by  marking  up  the  value  a 
certain  percentage  over  cost.  This  mark-up  will  vary  with  the 
nature  of  the  product  and  the  competition.  Price  cutting  is 
always  dangerous.  It  instils  doubt  in  the  mind  of  the  customer 
as  to  the  genuine  values  offered  by  the  store  and  it  makes  it  more 
difficult  to  sell  the  product  later  at  the  normal  price. 

The  larger  the  turnover,  the  less  profit  it  is  necessary  to  make 
on  each  sale  in  order  to  show  satisfactory  results.  That  is, 
volume  of  sales  reduces  overhead  and  increases  profits.  Turn- 
over of  merchandise  is  increased  by  increasing  sales,  while  the 
stock  remains  stationary  or  increases  less  rapidly. 

But  volume  of  turnover  is  not  sufficient.  There  is  one  other 
element.  Keep  every  line  turning.  Do  not  stock  lines  that  will 
not  sell.  If  some  line  is  in  stock  which  will  not  move,  try  to 
shift  it  to  some  store  where  it  will.  Such  a  store  can  usually 
be  found  in  a  chain- of  any  size.  If  the  stock  of  the  article  is 
too  large  for  such  methods,  or  if  there  is  no  such  store  to  be 
found,  reduce  the  price  and  turn  the  goods,  even  at  a  loss. 

The  chief  merchandising  appeal  of  the  average  chain  is  price. 
A  low  price  is  secured  by  efficient  purchasing,  low  overhead, 
and  large  turnover.  The  first  two  yield  in  importance  to  the 
last.  Also,  as  chains  grow,  and  their  goodwill  increases,  a  repu- 
tation for  quality  and  service  make  as  strong  an  appeal  as 
price. 

Expense  and  Profits. — Each  store  in  a  chain  will  show  the 
same  amount  approximately  for  expense  as  its  independent 
competitor,  less  the  economies  effected  by  increased  turnover, 
and  the  elimination  of  credit  accounts  and  deliveries.  When 
sales  are  large  the  overhead  goes  down,  because  the  turnover  has 
increased.  By  increasing  the  average  sale,  profits  are  increased 
also,  due  to  decreased  selling  expenses. 

Profits  come  with  standardization  of  method.  Generally, 
overhead  is  larger  in  small  chains  and  smaller  in  large  chains 
because  of  this  very  factor  of  standardization.  Chain  standards 
and  practices  are  evolved  slowly  by  experience.  A  new  chain 
cannot  hope  to  accomplish  in  a  few  months  what  normally  takes 
many  years. 

Generally  speaking,  chain  stores  find  it  the  best  policy  to  do 
business  for   cash.     This  eliminates  bad   debts  and   simplifies 


10  CHAIN  STORES 

accounting  practice.  In  almost  every  case  where  credit  has  been 
eliminated,  the  result  has  been  increased  net  profits  for  the 
organization. 

The  question  of  deliveries  is  harder  to  settle.  Some  chains 
deliver  on  payment  of  a  certain  amount  extra,  sufiicient  to  cover 
deUvery  charges. 

Watch  the  individual  stores.  Ascertain  the  reasons  why  cer- 
tain of  them  pay  well  month  after  month.  The  lessons  learned  in 
this  way  can  be  applied  with  benefit  to  those  which  do  not  pay 
well. 

Every  store  should  earn  a  profit,  unless  there  is  some  strong 
reason,  such  as  competition,  which  makes  it  impossible.  A 
new  store  will  take  a  certain  length  of  time  to  become  estabhshed. 
If  an  old  store  shows  consistent  losses,  and  no  other  reason  can 
be  found  except  lack  of  adequate  volume  of  sales,  this  store  should 
be  closed  and  a  new  one  started  in  some  better  favored  location. 
The  wise  chain  executive  knows  how  to  take  a  loss  as  well  as 
make  profits.  Mistakes  are  made  in  spite  of  the  highest  degree 
of  standardization.  It  is  his  business  to  see  that  these  mistakes 
occur  as  seldom  as  possible. 

Keep  expenses  down.  Establish  percentages,  based  on  records, 
which  can  be  applied  to  all  member  stores.  Investigate  2Lny  store 
the  itemized  expenses  of  which  exceed  the  allowed  percentage. 
By  means  of  daily  reports,  see  that  expenses  are  reduced  to  a 
minimum,  keep  every  line  of  goods  turning  at  a  profit,  and  profits 
for  the  entire  organization  should  be  forthcoming. 

Advertising. — Every  retailer  must  let  the  public  know  where  he 
is  located  and  what  he  has  to  offer.  This  can  be  done  in  one 
of  two  ways.  The  first  is  to  estabhsh  the  business  where  the 
traffic  will  pass,  and  to  display  the  goods  in  the  windows  so  that 
all  who  pass  may  see.  The  second  is  what  is  technically  known 
as  advertising,  that  is,  giving  the  people  the  same  information 
through  the  medium  of  magazines,  newspapers,  theatre  programs, 
etc.  All  chains  use  the  first  method  to  a  greater  or  less  extent. 
Few  chains  have  used  the  latter  method  in  the  past,  more  are 
using  it  now,  and  the  probability  is  that  in  the  future  the 
majority  of  chains  will  use  paid  space  in  certain  media  of 
publicity. 

The  type  of  advertising  done  by  the  chain  depends  on 


THE  PRINCIPLES  OF  CHAIN  STORE  OPERATION  11 

1.  The  size  of  the  chain, 

2.  The  type  of  product  or  products  sold, 

3.  The  location  of  the  store. 


The  larger  the  chain,  the  better  use  it  can  make  of  adver- 
tising. The  more  elastic  the  demand  for  the  products  sold,  the 
more  stimulus  can  be  given  to  sales  by  advertising.  The  type 
of  advertising  necessary  depends  a  great  deal  upon  the  location 
of  the  store.  Stores  out  of  the  line  of  traffic  must  do  more 
advertising  to  attract  trade. 

Advertising  should  be  initiated  at  headquarters  as  far  as 
possible,  although  local  conditions  may  make  special  advertising 
necessary.  In  local  or  semi-local  chains,  advertising  can  be 
standardized.  In  larger  chains,  allowance  will  be  made  for  local, 
sectional,  climatic  differences,  etc. 

Few  chains  can  advertise  nationally  with  profit.  But  few 
chains  can  afford  not  to  undertake  some  form  of  local  advertising. 

Personnel. — Are  methods  or  men  more  important  in  chain 
store  operation?  This  question  has  long  been  argued  and  seems 
no  nearer  settlement  than  before.  The  methods  are  necessary, 
but  the  men  to  carry  them  out  are  even  more  important.  No 
matter  how  well  standardized  the  procedure  and  the  policy  of  a 
chain  may  be,  it  will  not  operate  profitably  unless  there  is  a 
coordinating  personal  influence  which  binds  the  whole  together, 
making  it  work  in  harmony. 

Like  the  great  railway  magnates  of  the  past  century  who 
virtually  created  opportunity  out  of  what  they  saw,  the  pioneer 
chain  executives  have  built  up  vast  retailing  enterprises  against 
the  strongest  competition.  They  built  the  machine,  but,  as  with 
the  railways,  they  had  to  have  men  to  run  the  engines.  The 
chain  store  locomotives  are  the  local  store  managers.  From  this 
local  store  there  is  a  direct  line  to  the  central  office  which  must  be 
kept  clear.  Merchandise  must  go  forward,  daily  reports  must 
come  back.  The  district  manager  sits  at  his  desk  like  a  train 
despatcher  signalling  a  clear  road  for  the  trains  in  his  district. 

The  function  of  each  man  in  a  chain  store  organization  should 
be  clearly  defined,  from  the  chief  executive  down  to  the  humblest 
clerk.  And  each  member  of  the  organization  must  feel  an  interest 
in  his  work.     How  shall  this  interest  be  created?     By  giving 


12  CHAIN  STORES 

each  member  a  monetary  profit  in  the  operations  of  the  concern, 
and  making  this  profit  commensurate  with  the  work  he  himself 
does.  Even  the  clerk  will  sell  more  goods  if  he  or  she  receives 
extra  profit  for  so  doing. 

It ,  pays  the  chain  to  employ  brains,  even  at  a  high  price. 
The  executive,  the  buyer,  the  window  trimmer,  the  accountant, 
all  are  experts  in  their  line,  and  worthy  of  their  hire. 

Training  and  Promotion. — Choosing  the  right  man  in  the 
beginning  saves  much  trouble.  The  chain  store's  employment 
department  should  pick  and  choose  carefully  only  those  men  and 
women  whom  it  considers  as  possessing  the  requisite  characteris- 
tics for  success  in  the  organization. 

It  will  pay  the  company  to  train  the  clerk  before  actually 
putting  him  behind  the  counter.  He  should  be  taught  the  stand- 
ardized sales  policies  and  methods  of  the  chain,  the  nature  of 
the  product  he  is  selling,  the  arrangement  of  the  stock  in  the 
store,  the  habit  of  being  courteous  to  customers  under  all  con- 
ditions, etc.  This  preliminary  training  will  result  in  more  sales 
for  the  company  and  a  larger  bonus  for  the  clerk. 

Start  all  men  at  the  bottom  and  let  them  work  up.  Do  not 
look  outside  the  organization  to  fill  executive  positions.  There 
should  be  plenty  of  good  executive  material  under  training  at  the 
moment,  possessing  the  great  advantage  of  a  thorough  knowledge 
of  the  chain  and  its  ways.  Avoid  labor  turnover.  If  men  are 
anxious  to  leave  the  employ  of  the  chain,  there  must  be  some- 
thing wrong.  A  concern  that  makes  adequate  allowance 
for  the  store  cat  but  starves  the  store  manager  will  find  in  the 
long  run  that  its  economy  has  been  ill-directed. 

Promotions  should  take  place  mainly  on  merit.  Length  of 
service  is  seldom  a  substitute  for  ability. 

Morale. — The  chain  organization  is  held  together  by  morale. 
Morale  is  a  combination  of  discipline  and  teamwork  which  carries 
out  methods  and  even  betters  them.  A  proper  system  of  morale 
makes  every  individual  in  the  organization  morally  and  finan- 
cially'^ responsible  for  the  duties  of  his  position. 

The  higher  the  morale,  the  less  necessity  for  policing.  Chains 
should  keep  careful  watch  on  all  activities  of  their  personnel, 
but  the  best  safeguard  for  it  is  the  morale  of  the  organization. 
Morale  creates  teamwork  and  cooperation.     It  makes  it  easier  to 


THE  PRINCIPLES  OF  CHAIN  STORE  OPERATION  13 

coordinate  the  various  functions  of  the  business.  It  fuses  the 
sales  activity  and  creates  goodwill  towards  the  management 
among  the  employees. 

Morale  should  be  inspirational  and  instructive,  without 
cheapening  the  effect  by  using  the  style  of  language  so  frequently 
encountered  in  sales  bulletins.  Every  man  likes  encouragement 
and  it  costs  little  to  give  it  to  him.  Every  man  works  better 
when  he  is  interested  in  his  work.  Make  him  interested.  Let 
him  know  he  will  receive  a  bonus  for  his  sales  efforts.  Let  him 
know  that  what  he  does  is  appreciated. 

It  is  not  laid  down  as  a  principle  that  a  chain  should  publish 
a  house  organ,  but  it  is  laid  down  that  there  should  be  some 
estabUshed  method  of  publicity  by  which  the  central  office 
can  let  the  member  stores  know  what  is  going  on  both  at  head- 
quarters and  among  the  other  stores.  The  larger  organizations 
frequently  publish  house  organs  as  a  way  to  solve  the  difficulty. 
Smaller  concerns  send  out  sales  bulletins  and  letters.  In  local 
chains,  the  owner  can  pay  a  daily  visit,  or  keep  in  touch  by 
telephone. 

In  handling  the  personnel,  the  problem  resolves  itself  into 
one  of  training  and  choosing  men  of  the  type  which  can  take 
charge  of  a  retail  store  and  operate  it  by  routine  methods,  with 
partial  supervision.  It  offers  a  large  field  for  the  great  number 
of  men  who  must  always  work  under  someone  else's  guidance. 
Choose  your  men  carefully,  train  them  properly,  and  keep  up  the 
level  of  the  morale. 

Control. — All  the  manifold  activities  of  the  chain  can  be 
controlled  only  by  means  of  records.  Records  are  a  fundamental 
necessity  in  every  chain.  By  means  of  them  the  purchasing 
agent  buys  goods  to  sell  through  retail  stores  and  estimates  the 
quantities  necessary  to  keep  on  hand  in  the  warehouse.  By 
means  of  records,  the  sales  manager  keeps  track  of  the  sales  in 
various  stores  and  can  tell  at  a  glance  which  stores  are  doing 
well  and  which  are  falling  behind.  By  means  of  records,  the 
auditor  tells  whether  overhead  expenses  are  too  high.  Lastly,  by 
means  of  records  the  executive  control  is  exercised. 

The  average  small  retail  store  keeps  few  accounts,  because  the 
facts  are  supposedly  contained  in  the  head  of  the  owner.  But  all 
the  necessary  information  in  the  chain  is  tabulated.     It  under- 


14  CHAIN  STORES 

goes  a  regular  digestive  process  until  it  is  finally  served  up  to  the 
chief  executive  in  the  form  of  percentages  and  profits. 

The  records  of  the  chain  are  one  of  its  most  valuable 
possessions.  Extending  back  over  a  series  of  years,  they  contain 
in  essence  the  results  of  past  experience.  By  looking  back,  the 
chain  can  tell  approximately  what  to  expect  in  every  line  and 
phase  of  its  activity.  Should  it  plan  to  start  another  store,  the 
records  should  tell  what  a  store  in  such  a  location  should  earn. 
When  sales  are  reported  each  month,  the  sales  manager  can  see 
whether  the  amount  is  less  than  it  was  a  year  ago  at  the  same 
time,  or  more. 

All  chain  stores  should  keep  a  continual,  automatic  inventory 
of  stock  on  hand  in  warehouses,  and  in  some  cases  in  each  store. 
Adequate  turnover  of  all  lines  can  be  controlled  in  no  other  way. 

Records  fall  into  three  main  divisions: 

1.  Warehousing  and  purchasing  records, 

2.  Accounting  records,  overhead,  salaries,  etc., 

3.  Records  of  individual  retail  stores. 

Taken  collectively,  they  form  the  basis  of  the  chain's  opera- 
tion, and  the  person  in  authority  knows  daily  exactly  where 
his  company  stands  in  every  detail.  Thus,  the  principle  follows 
that  the  chain  should  have  records  so  complete  in  every  detail 
as  to  allow  the  executive  at  any  time  to  ascertain  the  exact 
status  of  any  store  in  the  chain,  any  warehouse,  any  manager's 
record,  and  all  overhead  expenses. 

The  Principles  of  Growth. — Everything  previously  discussed 
leads  us  to  this  point:  A  successful  chain  grows  larger.  It  adds 
more  links;  it  takes  in  more  territory. 

Ordinarily,  a  chain  should  expand  naturally  by  utilizing  the 
profits  made  in  old  stores  to  start  new  ones.  The  great  majority 
of  chains  have  been  financed  in  this  way,  and  this  is  without 
doubt  the  soundest  method. 

But  a  chain  can  also  expand  by  absorbing  other  chains  and  by 
adding  them  to  its  organization. 

Lastly,  a  chain  can  borrow  money  and  start  a  number  of 
retail  links  at  one  time.  This  is  the  most  hazardous  method,  and 
should  be  carefully  investigated  before  being  attempted. 

Chains  grow  not  only  as  their  financial  resources  expand, 


THE  PRINCIPLES  OF  CHAIN  STORE  OPERATION  15 

but  also  as  their  trained  personnel  grows  larger.  New  stores 
must  be  opened  for  new  potential  store  managers,  as  they  become 
trained  in  the  methods  and  policies  of  the  organization. 

Chains  are  found  chiefly  in  congested  centers  of  population, 
and  they  occupy  this  territory  principally  because  the  physical 
advantages  are  greater.  The  traffic  being  heavier,  the  volume 
of  trade  per  store  is  greater.  When  urban  locations  are  taken 
up,  those  chains  the  member  stores  of  which  require  a  minimum 
of  population  for  successful  operation  extend  their  activities  to 
the  suburbs.  A  grocery  store,  for  example,  can  operate  on  a 
population  of  ten  thousand  successfully.  (There  are  some  chains, 
of  course,  which  purposely  confine  themselves  to  the  smaller 
towns.) 

Watch  the  normal  growth  of  population  if  you  wish  to  extend 
your  program.  Natural  causes,  or  unusual  stimulus  to  growth, 
make  new  sites  continually  available.  If  you  do  not  take 
advantage  of  this  some  one  else  will. 

Conclusions. — Out  of  the  mass  of  specific  principles  for  chain 
store  operation,  two  fundamentals  emerge,  one  having  to  do  with 
methods  primarily,  the  other  having  to  do  primarily  with  men. 
In  other  words,  the  fundamentals  are  those  of  standardization 
and  of  coordination.  Chain  store  practice  should  be  standard- 
ized as  far  as  possible.  The  chain  store  personnel  should  co5rdi- 
nate  effort  and  practice. 

All  other  principles  must  be  connected  one  with  another  so  as 
to  make  the  process  of  operation  smooth.  The  major  part  of 
this  book  is  devoted  to  showing  how  methods  and  practice  may 
be  standardized  and  how  all  activities  may  be  united  into  a 
smoothly  functioning  organization  through  the  mechanism  of 
records.  Records  are  always  a  means;  never  an  end.  The 
chain  does  not  exist  to  make  records,  but  to  use  them.  The 
routine  of  chain  store  operation  merely  supplies  the  necessary  cogs 
which  will  make  the  whole  function  smoothly  and  in  unison. 


CHAPTER  II 
THE  CHAIN  STORE  FIELD 

Outline 

Classification  of  chain  stores. 

1.  Geographical. 

2.  According  to  policy. 

3.  Type  of  organization. 

4.  According  to  product  sold. 
Geographical. 

1.  National  chains. 

(o)  Comparatively  few. 

(6)  Follow  lines  of  population. 

2.  Sectional. 

(a)  Larger  number. 

3.  Local  chains. 

(a)  By  far  the  greatest  in  number. 
Operating  policy. 

1.  Saving  in  price  by  cutting  out 

(a)  Credit. 

(b)  Deliveries. 

(c)  Telephones. 

(d)  Miscellaneous. 

2.  Self  service  stores. 

(o)  Thus  far  limited  to  grocery  lines  and  restaurants. 
Organization. 

1.  Closely  centralized. 

(a)  Authority  of  store  manager  closely  limited. 

2.  Loosely  connected. 

(a)  Authority  of  store  manager  broad. 

3.  Partnership  type. 

4.  Manufacturers'  chains. 

5.  Agency  plan. 

Type  of  product  sold.  • 

1.  Material  products. 

(a)  Necessities. 

(b)  Semi-necessities. 

2.  Services. 
Trends. 

1.  Combination. 

16 


THE  CHAIN  STORE  FIELD  17 

(o)  Secures  additional  capital. 

(a)  Allows  new  operating  economies. 

1.  Reduced  overhead. 

2.  Increased  purchasing  power. 

(c)  Increases  rate  of  expansion. 

(d)  Increases  territorial  extent. 

(e)  Relieves  pressure  of  competition. 
Manufacturing  by  chains. 

(o)  Private  brand. 

1.  Gives  chain  unfailing  source  of  supply  of  uniform  quality. 

2.  Tends  to  reduce  cost  of  advertised  articles. 


CHAPTER  II 
THE  CHAIN  STORE  FIELD 

The  chain  store  movement  is  as  yet  in  its  infancy.  Judged  by 
the  comparatively  recent  origin  of  the  movement,  its  rapid 
and  unchecked  growth,  there  is  an  economic  place  for  chain 
stores  in  the  life  of  the  community.  They  help  in  no  small  way  to 
keep  the  cost  of  living  down  and  to  stabilize  retail  prices.  For 
example,  when  prices  fell  after  the  war,  the  canners  reduced  their 
prices.  The  jobbers  passed  on  the  saving  to  the  small  retailers, 
and  there  the  saving  stopped.  The  small  retailer  could  not  see 
far  enough  ahead  to  realize  that  he  must  pocket  his  loss  and 
reduce  his  prices.  But  the  chain  grocery  stores,  buying  direct 
of  the  canner,  immediately  revised  prices  in  line  with  the  new 
quotations. 

The  economic  trend  of  the  times  is  towards  more  direct  dis- 
tribution and  a  more  rapid  reflection  of  the  course  of  whole- 
sale prices  in  the  retail  field.  The  chain  stores  are  working  in 
accordance  with  this  tendency  and  not  against  it.  So  far,  the 
experiment  has  been  limited  to  comparatively  few  types  of 
products,  but  each  year  sees  new  chains  in  new  fields,  apparently 
prospering  in  the  venture.  Most  independent  retailers  have 
ceased  declaiming  against  the  chain  store  and  predicting  its 
failure.  They  are  accepting  it  as  an  accomplished  fact,  and  their 
aim  is  to  imitate,  as  far  as  possible,  the  methods  used  by  the 
chains  in  obtaining  their  success,  even  to  the  extent  of  starting 
chains  themselves. 

The  field  of  retailing  has  been  immensely  broadened.  It  now 
offers  opportunity  to  men  of  ambition  and  vision.  Brains 
came  first,  and  then  capital.  The  great  founders  of  the  present 
day  chain  stores  created  them  out  of  profits.  Capital  was  slow 
in  following  the  lead  or  realizing  that  a  new  field  had  been  created 
for  exploitation.  Capital  had  been  too  much  occupied  with 
the  profits  of  production  and  had  paid  little  attention  to  those 

18 


THE  CHAIN  STORE  FIELD  19 

of  selling.  The  past  century  was  the  great  age  of  productive 
effort  in  the  world.  The  present  century  seems  to  be  turning 
towards  scientific  sales  effort.  The  chain  store  organizations 
have  gone  farthest  with  their  experiments  towards  creating  an 
efficient  method  of  bringing  the  product  to  the  consumer. 

The  Inception  of  the  Movement. — The  credit  for  founding  the 
first  large  chain  of  stores  belongs  to  George  H.  Hartford,  the 
originator  and,  until -his  death,  the  president  of  the  Great  Atlantic 
&  Pacific  Tea  Co.  In  1857  he  was  in  the  hide  and  leather  busi- 
ness in  New  York,  and  in  1859  he  added  tea  as  a  sideline.  This 
venture  was  so  successful  that  in  1864  he  organized  the  Great 
American  Tea  Co.  Then  it  occurred  to  him  that  it  would  be 
possible  to  have  a  chain  of  retail  stores  throughout  New  York 
and  Brooklyn  and  in  a  few  years  he  had  a  chain  of  25  stores, 
called  the  Great  Atlantic  &  Pacific  Tea  Co. 

The  dates  of  founding  some  of  the  more  important  chains  are 
as  follows: 

Great  Atlantic  &  Pacific  Tea  Co 1859 

Jones  Tea  Co 1872 

F.  W.  Woolworth  Co 1879 

James  Butler 1882 

Hanan  Shoe  Co 1885 

Acme   Tea   Co.    (Now   part  of  American  Stores  Cor- 
poration)    1887 

S.  S.  Kresge  Co 1897 

United  Cigar  Stores  Co 1900 

J.  C.  Penney  Co 1902 

The  greater  part  of  the  development  of  these  chains  has 
taken  place  within  the  last  20  years,  but  it  is  interesting  to  note 
that  all  the  earlier  chains  have  attained  considerable  size  and 
prominence.  The  Great  Atlantic  &  Pacific  Tea  Co.  is  still  far 
ahead  of  all  others  in  the  number  of  stores  operated.  The  date  of 
the  Hanan  Shoe  Co.'s  starting  its  chain  of  retail  stores  shows 
that  the  idea  of  a  manufacturer's  chain  was  conceived  compara- 
tively early  in  the  development,  and  the  far  greater  expansion  of 
the  purely  retail  chains  makes  it  seem  that  these  chains  will  be 
the  ultimate  type. 

Types  of  Chain  Stores. — Chains  may  be  classified  in  several 
ways,  each  one  of  which  offers  valuable  points  for  analysis. 
They  are: 


20  CHAIN  STORES 

1.  Geographical  Extent. — Under  this  heading  chains  may  be  divided  into 

(a)  National. 
(6)  Sectional, 
(c)   Local. 

2.  Policy — Under  this  heading  come  those  particular  sales  and  merchandis- 

ing principles  according  to  which  the  chain  is  operated, 
(a)  Cash  and  carry. 
(6)   Self  service. 

3.  Organization. — Chains  have  shown  considerable  variation  on  this  point, 

due  to  difficulty  in  standardizing  both  men  and  methods. 

(a)  Closely  centralized  type. 

(b)  Loosely  connected. 

(c)  "Penney"  type. 

(d)  Combination  of  types. 

4.  The  Product  Sold. — This  question  of  the  product  was  at  first  compara- 

tively limited,  but  in  recent  years  it  has  been  extended  to  such 
intangible  products  as  places  of  amusement,  barber  shops,  hotels, 
and  other  institutions  offering  service  rather  than  a  tangible  product. 

Chains  Considered  Geographically. — There  are  few  national 
chains,  if  by  national  we  mean  operating  stores  in  every  or  nearly 
every  state  in  the  union.  Among  the  large  chains,  the  Great 
Atlantic  &  Pacific  Tea  Co.,  the  F.  W.  Wool  worth  Co.,  and  the 
United  Cigar  Stores  Co.  are  the  outstanding  examples.  Each 
of  these  chains  has  followed  a  policy  of  locating  in  the  larger 
centers  of  population  first. 

The  F.  W.  Woolworth  Co.  claims  to  have  a  store  in  every 
town  containing  8,000  inhabitants  or  over.  Figure  1  shows  how 
their  stores  are  distributed.  The  great  majority  of  these  stores 
are  located  in  New  England  and  the  Middle  Western  States, 
with  New  York  and  Pennsylvania  in  the  lead.  The  growth  of 
this  chain  will  obviously  follow  the  lines  of  population,  and  if 
the  inhabitants  of  the  South  or  the  West  gather  more  in  the  future 
in  cities  and  towns,  the  Woolworth  stores  will  follow  them. 

A  great  many  chains  are  sectional,  that  is,  they  have  outgrown 
their  purely  local  character  and  have  extended  into  the  neighbor- 
hood. Some  of  these  sectional  chains,  such  as  the  Louis  K. 
Liggett  Co.,  show  signs  already  of  becoming  national.  The 
Liggett  Co.  with  fifty-five  stores  in  New  York  City  and  nineteen 
in  Boston,  eight  in  Philadelphia,  and  eight  in  Washington,  has 
already  extended  its  operations  as  far  South  as  Georgia  and 
Florida,  and  as  far  West  as  Oklahoma  and  Minnesota.     Many 


THE  CHAIN  STORE  FIELD 


21 


22  CHAIN  STORES 

grocery  chains  are  sectional,  such  as  the  Kroger  Grocery  & 
Baking  Co.  in  the  Middle  West,  the  John  T.  Connor  Co.  in 
Massachusetts,  and  the  Mayflower  Stores  in  Rhode  Island. 

Last  of  all,  come  the  local  chains,  which  form  the  bulk  of  the 
field,  chains  with  two,  three,  five  or  ten  links,  all  closely  con- 
nected in  the  city  or  its  immediate  surroundings. 

Few  chains  are  started  with  the  definite  idea  of  making  them 
national  or  even  sectional.  The  growth  is  usually  gradual  and 
the  steps  in  the  growth  perfectly  logical.  The  local  chain,  which  is 
superior  in  its  methods,  becomes  sectional.  The  sectional  chain 
keeps  on  expanding  until  it  becomes  too  large  to  be  called 
sectional,  and  becomes  national. 

Chains  Considered  According  to  Operating  Policy. — The 
chain  store's  great  appeal  to  the  public  has  been  saving  in  price. 
To  attain  this  end,  chain  managements  have  been  constantly 
scheming  how  to  sell  their  goods  at  a  greater  saving.  In  1912, 
the  Great  Atlantic  &  Pacific  Tea  Co.  did  away  with  telephones, 
deliveries  and  credits,  and  the  company  claims  that  from  this 
change  a  65  per  cent,  increase  in  business  has  come  about. 
This  policy  met,  in  fact,  with  instant  approval  from  the  purchas- 
ing public,  a  large  part  of  which  was  willing  to  do  without  the 
extra  services  if  it  could  obtain  the  saving  in  price.  This  policy 
has  been  generally  adopted  by  chain  store  organizations  and  the 
name  chain  store  at  this  time  is  almost  synonymous  with  "  cash- 
and-carry." 

Richard  M.  Decker,  treasurer  of  Chas.  M.  Decker  &  Brothers 
of  Orange,  N.  J.,  explains  as  follows  the  reasons  which  led  them 
to  change  radically  the  type  of  their  organizations: 

"The  company  of  Chas.  M.  Decker  &  Bros,  has  operated  so-called 
service  grocery  stores  since  1871.  However,  due  to  changing  conditions, 
the  demand  for  this  class  of  store  was  decreasing,  rather  than  increasing, 
in  this  territory.  Therefore,  in  the  early  part  of  1918  we  decided  to 
enter  the  chain  store  business  for  ourselves.  Since  that  time,  we  have 
closed  all  but  three  of  our  service  stores  and  have  opened,  either  our- 
selves or  through  the  purchase  of  another  company,  approximately  one 
hundred  and  sixty  odd  thrift  stores. 

"In  1920  we  organized  a  new  company  to  take  over  the  operating 
thrift  stores  of  Chas.  M.  Decker  &  Bros,  and  to  open  additional  ones  as 
times  and  conditions  should  warrant.     Two  companies  are  now  being 


THE  CHAIN  STORE  FIELD  23 

operated  but  with  one  centralized  purchasing  and  administrative 
organization.  We  have  different  schedules  of  prices  in  the  two  chains 
of  stores;  and  it  is  needless  to  say  that  there  is  a  difference  in  our  account- 
ing systems. 

"At  present  we  consider  the  thrift  stores  the  most  satisfactory,  but 
we  also  feel  that  there  is  enough  demand  in  certain  localities  for  a  service 
grocery  store;  and  whether  the  service  grocery  store  should  be  con- 
tinued depends  of  course  upon  whether  there  is  sufficient  demand.  We 
would  also  add  that  in  our  service  stores  we  carry  a  much  greater 
assortment  of  merchandise  than  in  our  thrift  stores." 


Here,  in  a  nut  shell,  is  an  answer  to  arguments  against  the 
chain  cash-and-carry  stores.  The  public  prefers  them  to  the 
service  stores.  The  people  who  can  afford  to  pay  for  extra 
services  are  comparatively  few,  compared  to  those  who  prefer 
to  carry  their  purchases  home  and  save  the  money. 

There  has  been  one  further  development  in  cutting  down 
expenses  and  this  is  the  self-service  store,  as  evidenced  by  the 
phenomenal  growth  of  the  Piggly  Wiggly  stores.  Since  1916, 
the  Piggly  Wiggly  Co.  has  opened  600  stores.  There  is  saving 
on  clerk  hire  as  well  as  the  customary  savings  on  delivery  and 
credits.  The  plan  is  very  simple.  There  are  turnstile  gates 
through  which  the  customer  enters.  Goods  are  all  placed  on 
open  shelves  with  prices  plainly  marked.  The  customer  opens 
the  refrigerator  and  takes  out  whatever  he  or  she  wishes.  It  is 
impossible  to  leave  the  store  without  passing  through  all  the 
aisles.  When  the  customer  reaches  the  out-turning  wicket  a 
clerk  records  the  amount  of  the  purchase  and  the  customer  pays 
this  to  the  cashier. 

Although  the  Piggly  Wiggly  stores  appear  to  fill  a  certain  need 
in  retail  merchandising  the  rapid  growth  of  the  idea  has  brought 
about  certain  financial  difficulties.  The  Manhattan  Piggly 
Wiggly  Corporation,  one  of  the  groups  operated  under  separate 
franchise,  is  in  the  hands  of  a  receiver.  The  future  of  the  self- 
service  idea  as  embodied  in  the  Piggly  Wiggly  stores  is  not  yet 
certain. 

The  Dry  Goods  Economist  quotes  the  following  remarks 
about  the  profits  and  economies  made  by  the  Piggly  Wiggly  Co. 
from  the  use  of  the  self-service  idea : 


24  CHAIN  STORES 

"The  first  Piggly  Wiggly  store  iji  Memphis,  Tenn.,  was  opened  in  a 
building  formerly  occupied  by  one  of  a  chain  of  twenty  stores.  For  the 
six  months  immediately  preceding  the  taking  over  of  the  building  by  the 
Piggly  Wiggly  concern,  the  sales  of  the  former  chain  store  had  approxi- 
mated $34,000  with  an  approximate  expense  of  $5,200.  The  Piggly 
Wiggly  organization  retained  the  clerks  formerly  used  in  the  other 
store  and  had  the  same  management,  but  put  into  effect  its  self-service 
system  and  its  own  equipment.  In  the  first  six  months  of  the  Piggly 
Wiggly  occupancy,  $114,000  business  was  done  at  an  expense  of  $3,400. 
The  self-service  system  cut  $300  per  month  from  expenses,  and  showed 
a  gain  of  $80,000  in  sales.  Under  the  old  system  the  overhead  had  been 
15  per  cent;  the  Piggly  Wiggly  overhead  was  three  per  cent.  For  two 
months,  June  and  July  1920,  this  store  did  an  average  of  $6,000  per 
week,  while  it  carries  $8,000  worth  of  merchandise  at  all  times,  giving 
it  a  thirty-nine-time  turnover  yearly." 

The  above  account  is  obviously  written  from  the  Piggly  Wiggly 
angle.  Now  listen  to  what  a  chain  store  which  tried  out  the 
self  service  method  has  to  say: 

"We  tried  out  the  Piggly  Wiggly  idea  of  a  self-service  store,  and  it 
worked.  In  fact,  it  is  one  of  our  best  stores.  However,  we  find  this  is 
true:  there  is  no  tremendous  saving  in  the  payroll,  as  might  be  expected. 
We  Uke  this  one  store  in  its  location,  down  town,  and  feel  that  it  takes 
care  of  the  afternoon  rush  more  efficiently  than  the  old  style  of  store 
ever  could.  But  for  a  residence  neighborhood,  we  feel  the  self-service 
store  would  never  work.  Women  like  to  have  things  explained  to 
them.  The  personal  factor  is  too  valuable  to  warrant  having  a  lot  of 
mechanical  stores  without  real  human  beings  behind  the  counter." 

This  sounds  strangely  like  the  arguments  that  were  put  forth 
against  the  chain  stores  themselves  in  the  early  days,  when  it 
was  freely  predicted  they  could  never  be  a  success  because  of 
the  lack  of  this  very  personal  element  which  is  brought  up  here 
against  the  self-service  store.  Actually,  it  is  too  early  to  speak 
with  certainty  as  to  the  future  of  this  development.  It  would 
seem  that  there  should  be  a  place  for  such  a  store  in  nearly  every 
community,  and  the  success  of  the  Piggly  Wiggly  Company  itself 
would  seem  to  bear  out  this  assumption. 

Whether  the  self-service  idea  can  be  adapted  to  forms  of 
merchandise  other  than  groceries  has  not  yet  been  attempted. 


THE  CHAIN  STORE  FIELD  25 

If  the  self-service  plan  is  to  be  restricted  to  the  grocery  field,  its 
importance  will  be  restricted,  but  if  it  can  be  extended  to  other 
fields,  there  is  no  limit  to  its  possibilities. 

Type  of  Chain  Organization. — There  is  no  standard  type  of 
chain  organization.  It  varies  all  the  way  from  the  most  closely 
connected  organization  possible  under  the  circumstances  to  a 
very  broad  authority  vested  in  the  local  manager.  The  grocery 
chains,  the  drug  chains  and  other  chains  dealing  in  staple  commo- 
dities are  ordinarily  very  closely  knit  together.  In  other  cases, 
each  store  is  dependent  on  the  head  organization  only  for  certain 
things,  in  others  being  a  unit  in  itself,  such  as  the  hotel  chains. 
Between  these  two  extremes  there  is  a  wide  gradation, 

A  different  type  of  organization  is  usually  required  for  chains 
that  have  several  stores  in  each  community  than  for  that  in 
which  the  links  are  widely  scattered.  It  takes  a  larger  percent- 
age of  population  to  support  a  chain  candy  store  than  it  does 
to  support  a  chain  drug  or  grocery  store.  The  proximity  of  the 
various  links  in  a  grocery  chain  makes  it  easier  to  superintend 
their  operation  and  makes  it  unnecessary  to  invest  the  branch 
manager  with  any  great  amount  of  authority. 

The  Penney  system  is  explained  at  length  later  in  the  book. 
This  partnership  type  of  organization  seems  to  fit  the  dry 
goods  field  particularly  well,  although  there  seems  to  be  no 
inherent  reason  why  it  should  not  be  applied  to  other  fields  with 
equal  success. 

The  manufacturer's  chain  brings  in  so  many  new  problems  not 
existing  in  the  average  retailer's  chain  that  the  subject  has  been 
treated  separately  in  Chap.  XXI. 

The  agency  plan  as  instituted  by  the  United  Drug  Company 
seems  outside  the  ordinary  chain  store  field  since  the  agencies 
are  not  under  one  central  executive  control  as  are  all  other  types 
of  chains,  including  the  manufacturer's  chain. 

The  Type  of  Product. — In  the  last  analysis,  the  greatest  point 
of  differentiation  between  chains  is  the  type  of  product  they  sell. 
As  previously  mentioned,  the  chain  idea  has  spread  from  the 
grocery  and  the  five  and  ten  cent  stores,  until  now  it  enters 
into  many  retailing  lines.  Following  is  a  classification  of  some 
businesses  successfully  operating  under  chain  store  principles  and 
practices. 


26  CHAIN  STORES 

Bakeries  Hardware 

Barbers  Hats 

Butchers  Hosiery 

Cloaks  and  suits  Hotels 

Clothes  Men's  clothing 

Candy  and  confectionery  Optical 

JDairy  products  Pianos 

Drugs  Restaurants 

Dry  goods  Shirts 

Dyers  and  cleansers  Shoes 

Five  and  ten  cent  stores  Tailors 

Florists  Theaters 

Fruit  Tobacco 

Garages  Typewriters 

Groceries  Waists 
Haberdashery 


It  is  not  too  much  to  say  that  all  operating  policies  and  methods 
depend  on  the  nature  of  the  product  or  service  to  be  marketed, 
not  only  the  method  of  accounting,  the  type  of  clerk,  and  the 
degree  of  supervision  necessary  but  also  the  location  and  the 
methods  of  publicity.  The  nature  of  the  product  will  also  deter- 
mine the  type  of  customer  to  whom  the  chain  must  appeal. 

Chain  Store  Trends. — It  is  difficult  to  tell  what  the  ultimate  out- 
come of  the  chain  store  movement  will  be.  It  seems  definitely 
established  that  it  is  to  be  one  of  the  most  important  elements  in 
retailing  and,  as  pointed  out  before,  it  is  growing  because  its 
principles  are  in  harmony  with  the  spirit  of  the  times. 

There  are  two  major  tendencies  which  deserve  particular 
mention.  The  first  of  these  is  the  tendency  to  combination  which 
is  observable,  and  the  second  is  the  increasing  policy  of  the 
chain  organizations  to  manufacture  as  much  as  they  can  of  what 
they  sell. 

1.  Combination. — It  seems  to  be  a  principle  of  chain  store 
growth  that  a  chain  will  attain  a  certain  size  by  carefully  plodding 
ahead  on  the  most  conservative  lines  and  then  suddenly  merge 
with  another  chain  of  the  same  size,  or  one  slightly  smaller. 

There  have  been  three  great  chain  mergers.  In  1912,  the 
F.  W.  Wool  worth  Co.  was  formed  to  take  over  and  operate  six 
five  and  ten  cent  store  chains,  viz: 


THE  CHAIN  STORE  FIELD  27 

Stokes 

F.  W.  Woolworth  &  Co 318 

S.  H.  Knox  &  Co 112 

F.  M.  Kirby  &  Co 96 

E.  P.  Charlton  &  Co 53 

C.  S.  Woolworth 15 

W.  H.  Moore 2 

Total 596 

At  one  stroke  the  F.  W.  Woolworth  Co.  became  a  national 
chain,  for  the  various  components  had  each  developed  a  separate 
section  of  the  country.  The  motives  for  the  merger  were  plain. 
It  gave  at  once  a  stronger  financial  organization,  much  greater 
buying  power,  and  a  consequent  wider  range  of  articles  which 
could  be  sold  at  five  and  ten  cents,  and  lastly  it  increased  operat- 
ing efficiency.  Since  the  merger,  the  number  of  stores  in  the 
Woolworth  organization  is  nearly  double  the  596  stores  operated 
at  that  time.  The  sales,  however,  have  almost  trebled,  going 
from  $52,616,123  in  1911  to  $147,644,999  in  1921,  a  space  of  just 
ten  years. 

The  second  great  merger  was  in  the  grocery  field  in  Philadel- 
phia when  the  following  five  chains  combined  to  form  the 
American  Stores  Co.     The  merger  took  place  in  1917. 

Founded  Stokes 

The  Acme  Tea  Co 1887  433 

Robinson-Crawford 1891  186 

The  Bell  Co 1890  214 

Child's 1883  268 

Dunlap  &  Co 1888  122 


1,223 


This  total  of  1,223  stores  made  the  American  Stores  Co., 
the  second  largest  grocery  chain  in  the  country,  and  the  only 
chain  operating  more  than  1,000  stores  which  was  not  national  in 
scope.  The  results  are  substantially  the  same  as  in  the  case  of 
the  Woolworth  combination. 

The  mergers  of  small  chains  which  take  place  constantly  are 
rarely  discussed.  They  are  not  large  enough  to  cause  much  stir  in 
the  commercial  world.     But  this  process,  which  goes  on  unceas- 


28  CHAIN  STORES 

ingly,  and  has  been  more  rapid  of  late  years  has  enormously 
increased  the  number  of  chain  stores.  No  sooner  do  two  or  more 
chains  combine  than  a  new  chain  arises  to  compete  with  them. 
No  chain  has  yet  succeeded  in  having  a  monopoly  because  the 
same  fields  in  which  it  operates  are  open  to  its  competitors. 

The  third  and  most  significant  combination  of  the  three 
took  place  in  1919,  when  the  United  Retail  Stores  Corporation 
was  formed  by  the  Duke-Whelan  interests.  It  was  not  a  com- 
bination of  several  companies  dealing  in  the  same  product,  but  a 
combination  of  companies  retailing  different  products.  The 
statement  to  the  stockholders  concerning  the  attitude  of  the 
management  said: 

"For  several  years  the  outstanding  feature  of  business  development 
in  the  United  States  has  been  the  growth  of  chain  store  merchandising. 
It  has  been  steady  and  permanent  and  promises  to  have  greater  expan- 
sion during  the  next  ten  years.  The  United  Cigar  Stores  Co.  was 
among  the  pioneers  in  the  development  of  the  chain  store  idea  and  during 
the  growth  of  the  company  a  splendid  organization,  efficient  in  methods 
of  systematic  checking  and  progressive  store  management  was  built  up. 

"As  all  chain  store  development  rests  primarily  on  securing  suitable 
locations,  it  was  reaUzed  by  the  management  that  the  large  real  estate 
department  pretty  well  covering  the  country  could,  without  much 
additional  expense,  secure  stores  for  other  lines  of  business  besides  cigars. 
Also,  as  fundamentals  of  chain  store  operation  apply  to  most  lines  of 
merchandise,  the  experience  of  the  successful  heads  of  various  depart- 
ments of  the  company  could  be  applied  to  any  field  of  chain  store 
management  considered  desirable. 

"In  short,  the  management  felt  that  by  securing  additional  capital, 
and  being  placed  in  a  position  to  finance  new  enterprises,  expansion 
most  profitable  to  the  stockholders  would  be  assured." 

The  new  company  started  out  with  three  chains.  The  United 
Cigar  Stores  Co.  was  taken  in  first.  Gilmer's,  Inc.,  a  dry  goods 
chain  operating  chiefly  in  the  South  was  acquired.  And  lastly  the 
United  Retail  Candy  Stores  Co.  was  formed  which  already  has  over 
twenty-five  stores  in  operation.  In  addition  to  these  three 
chains,  Montgomery  Ward  &  Co.,  the  second  largest  mail  order 
house  in  the  country,  was  acquired.  In  this  way  the  corporation 
felt  that  the  retail  outlet  problem  was  solved.     It  is  planned  to 


THE  CHAIN  STORE  FIELD  29 

have  each  of  the  subsidiary  companies  manufacture  a  great  deal 
of  what  it  sells.  The  United  Cigar  Stores  Co.  already  was 
ensured  a  supply  of  its  own  branded  goods  and  the  Furst  & 
Kramer  Co.  was  bought  to  supply  its  own  brand  of  candy  to  the 
United  Retail  Candy  Stores.  A  retail  drug  chain,  the  United 
Retail  Chemists  Corporation,  operates  eighteen  stores  mostly  in 
New  Jersey. 

Each  line  of  business  will  be  run  as  a  separate  entity.  The 
parent  corporation  will  furnish  capital  and  funds.  About  half 
the  stock  in  each  company  will  be  sold  to  the  members  of  that 
company  and  the  public.  In  addition  to  the  cigar  stores,  the 
candy  stores,  the  drug  stores  and  the  department  stores,  the 
corporation  may  start  grocery  stores  or  any  other  type  of  retail 
store  for  which  it  sees  a  need.  The  United  Retail  Stores 
Corporation  plans  to  furnish  the  accounting  system,  locate  sites 
for  retail  stores,  and  furnish  men. 

The  corporation  has  no  intention  of  confining  its  operations 
to  the  United  States  for  its  charter  reads:  "To  extend  and  carry 
on  generally  in  the  United  States  and  throughout  the  world  a 
manufacturing  business  and  a  system  of  retail  stores  for  merchan- 
dising of  all  kinds."  In  the  full  course  of  expansion  the  corpora- 
tion was  hit  by  the  post-war  deflationary  movement  and  plans 
were,  if  not  suspended,  at  least  modified,  to  meet  the  new  con- 
ditions. 

2.  Manufacturing  by  Chains. — When  the  chain  stores  first 
came  into  conflict  with  manufacturers  on  the  questions  of  buying 
direct  and  maintaining  manufacturers'  prices,  the  result  was 
that  in  many  cases  the  chains  started  factories  of  their  own  to 
manufacture  a  certain  portion  of  their  products  which  they  found 
it  difficult  to  obtain  outside.  These  manufactured  products 
they  labeled  with  a  brand  of  their  own  invention  and  placed 
them  in  competition  with  the  advertised  articles. 

On  the  part  of  the  grocers,  the  business  of  manufacturing  their 
own  brands  was  taken  directly  from  the  practice  of  the  jobbers 
and  wholesale  grocers,  75  per  cent,  of  whom  had  for  a  long  time 
been  manufacturing.  The  war,  shutting  off  as  it  did  a  great 
deal  of  importation  from  Europe,  was  a  great  stimulus  to  chain 
manufacturing.  The  Woolworth  Co.,  particularly,  took  this 
opportunity  to  start  manufacturing  many  articles. 


30  CHAIN  STORES 

The  United  Drug  Co.,  an  association  of  manufacturers,  has 
provided  for  the  sale  of  its  products  not  only  through  its  own 
chain  of  stores,  the  Louis  K.  Liggett  Co.,  but  through  an  extensive 
chain  of  agencies.  The  United  Cigar  Stores  Co.,  which  manu- 
factures many  of  its  own  brands,  pursues  this  same  policy  of 
extending  sales  through  agencies  into  districts  which  are  hardly 
large  enough  to  support  one  of  the  company's  own  stores.  The 
Winchester  Stores  Co.  has  attempted  this  same  scheme  of  obtain- 
ing distribution  for  manufactured  products  and  this  method  is 
used  by  the  majority  of  the  manufacturers'  chains.  The  goods 
manufactured  by  the  chain  are  sold  at  lower  prices : 

1.  It  gives  the  chain  an  unfailing  source  of  supply  of  goods  to  sell,  in 
uniform  quantities,  and  of  uniform  quality, 

2.  It  tends  to  keep  the  price  of  advertised  articles  down. 

But  independent  manufacturers  need  have  no  fear  that  the 
manufacturing  policy  of  the  chain  will  do  away  with  all  demand 
for  their  products,  provided  they  are  merchandised  properly. 
The  customer  of  the  chain  store  can  be  sure  of  getting  what  he 
asks  for. 

Conclusions. — The  chain  store  movement  is  still  in  the  growing 
stage.  Differentiation  is  bound  to  occur.  That  is,  the  science 
of  retailing  has  only  in  the  past  few  years  passed  the  experimental 
stage.  Standardization  is  brought  about  by  increased  competi- 
tion and  the  resulting  elimination  of  the  unfit.  Thus,  in  the 
future,  chain  store  practice  will  become  even  more  standardized 
than  it  is  today,  granting,  of  course,  individual  and  minor  differ- 
ences in  policy  or  the  guiding  influence  of  a  great  executive. 

It  is  difficult  to  forecast  the  future  further  than  to  say  that  it 
is  full  of  opportunity  and  promise.  The  experiment  of  the 
United  Retail  Stores  Corporation  brings  in  a  new  and  highly 
interesting  development.  This  company  maintains  that  it  is 
possible  to  standardize  chain  store  practice  sufficiently  to  run 
several  retail  ventures  of  different  kinds  under  the  same  executive 
control,  and  furthermore,  that  the  business  of  manufacturing  is 
necessary  for  the  greatest  success  of  the  chain. 


CHAPTER  III 
LOCATING  THE  STORE 

Outline 

The  general  location  as  determined  by 

1.  The  product  to  be  sold. 

(a)  Necessities. 

1.  Must  be  located  on  traffic. 
(6)  Shopping  lines. 

1.  May  locate  off  traffic  provided. 
(a)  Advertising  is  done. 

2.  The  policy  of  the  company. 

(a)  To  locate  in  centers  of  population. 
(fe)   To  locate  in  small  towns. 

3.  The  distance  from  source  of  supply. 

(a)  From  factory. 
(6)   From  warehouse. 
The  specific  town  or  city. 

1.  Movement  of  population. 

(a)  Anchored  as  far  as  business  district  is  concerned. 

(b)  City  moving  up  hill. 

(c)  Moving  away  from  rivers. 

2.  Number  of  the  population. 

(a)  Rate  of  growth. 

3.  Character  of  population. 

(a)  Determined  by 

1.  Industries  in  city. 

4.  Amount  of  suburban  trade. 
The  prospective  site. 

1.  Distance  from  shopping  center. 

(o)  From  railroads. 

(6)   From  junction  points. 

(c)    From  competitive  stores. 

2.  The  side  of  the  street. 

(a)  Shady  side  more  suited  for  women's  shops. 
1.  Rent  higher. 
Analyzing  the  traffic. 
1.  According  to  volume. 

(a)  By  hours  of  the  day. 
(h)   By  days  of  the  week. 

31 


32  CHAIN  STORES 

2.  By  sex. 

(a)  Male. 
(6)   Female. 

3.  Traffic  entering  neighboring  stores. 

4.  Amount  of  traffic  carrying  bundles. 

5.  Type  of  traffic. 

(a)  Shoppers. 
(6)   Commuters, 
(c)   Miscellaneous. 
The  building. 
1;  Construction. 

(a)  Number  of  stores. 
(6)   Material. 

(c)  Condition. 

(d)  Heating. 

(e)  Water  supply. 
(/)    Miscellaneous. 

2.  Present  occupants. 

(a)  Character. 

(6)  Length  of  leases. 

(c)    Degree  of  success  obtained  in  location. 

3.  The  store. 

(a)  Floor  space. 

1.  Necessity  of  new  partitioning. 
(6)  Fixtures. 

(c)  Display  windows. 

1.  Arrangement. 

(d)  Entrance. 

1.  Up  steps  or  level. 

(e)  Lighting. 
Renting  or  owning. 

1.  Dependent  on 

(a)  Size  of  chain, 
(6)   Capital. 
(c)    Rate  of  expansion. 
{d)  PoUcy. 

2.  Possibilities  of  profit  from  owning  and  renting  remainder  of  building 

to  tenants. 

3.  AdvisabiUty  of  special  realty  department  to 

(a)  Collect  rents. 

(6;  See  to  improvements. 

(c)  Make  rentals  and  new  leases. 

(d)  Miscellaneous. 


CHAPTER  III 
LOCATING  THE  STORE 

No  matter  whether  a  merchant  is  locating  his  second  or  his 
two  hundredth  store,  the  location  of  it  is  of  first  importance. 
Probably  more  has  been  written  about  locating  the  chain  store 
than  any  other  phase  of  the  subject.  The  reason  is  simple. 
There  is  no  other  aspect  of  the  business  which  is  calculated 
so  much  to  catch  the  public  interest,  always  alive  to  novel 
merchandising  methods.  There  is  something  out  of  the  ordinary 
in  the  idea  of  a  man  or  several  men  standing  on  a  street  corner 
and  clocking  the  passers-by.  Yet  this  was  the  method  initiated 
by  the  United  Cigar  Stores  and  widely  imitated  over  the  whole 
country. 

Many  chain  store  systems  maintain  real  estate  departments 
which  are  organized  to  a  high  degree.  A  department  of  this 
sort  not  only  picks  the  sites,  but  it  takes  care  of  the  buildings, 
makes  improvements,  renews  leases,  in  a  word,  takes  entire 
charge  of  the  company's  property.  A  separate  real  estate  de- 
partment, of  course,  is  possible  only  for  chains  possessing  a  large 
number  of  stores  and  facilities  for  increasing  this  number  at  a 
comparatively  steady  rate. 

But  location  is  not  always  a  matter  of  finding  out  where 
the  largest  number  of  people  pass  during  the  day.  Some  large 
chains  rely  little  on  this  factor  to  secure  patronage.  An  example 
of  such  a  chain  is  the  J.  C.  Penney.  Penney  wants  low  rents.  It 
seldom  rents  a  store  in  what  is  supposed  to  be  the  best  locality, 
although  much  depends  on  the  town  and  the  character  of  possible 
customers.  It  tries  to  locate  in  a  fairly  central  position  in  the 
town  but  rarely  on  the  main  street.  It  will  go  to  the  very 
edge  of  the  business  district  if  the  downtown  side  streets  are  too 
expensive.  This  policy  is  justified  for  this  company  which  finds 
that  people  will  come  without  much  regard  to  location.  This 
rule  must  be  modified  occasionally.  As  one  of  their  officials  says, 
a  farmer  will  walk  a  block  to  save  a  few  cents,  but  a  miner  will 
3  33 


34  CHAIN  STORES 

not.  Therefore,  in  mining  districts  the  Penney  pohcy  has  to  be 
made  to  suit  conditions. 

General  Principles  of  Location. — In  the  old  days  a  merchant 
bought  or  rented  a  store  where  he  could  get  it.  He  hung  out  his 
sign  and  waited  for  customers.  If  such  a  policy  were  tried  today, 
he  would  still  be  waiting.  If  the  modern  merchant  is  not  pre- 
pared to  make  his  presence  known  by  advertising  or  by  cut 
prices  or  special  sales,  he  must  put  his  store  where  the  largest 
number  of  potential  customers  will  see  it. 

The  first  thing  to  do  when  locating  a  store  is  to  analyze  the 
business  and  see  exactly  to  whom  the  goods  are  to  be  retailed 
and  how  trade  is  to  be  attracted.  One  of  the  experts  in  locating 
sites  divides  merchants  into  two  classes: 

1.  Those  Who  Advertise. — Such  merchants  can  afford  to  take 
a  chance  on  location.  He  gives  such  notable  examples  as  Lane 
Bryant  in  New  York,  maternity  garment  merchandizers,  who 
cater  to  a  Fifth  Avenue  public,  although  located  half  a  block 
away  from  Fifth  Avenue  on  38th  Street.  Another  example  is 
Spear  &  Co.,  furniture  retailers.  New  York,  who  have  made  a 
big  success  although  located  on  what  is  technically  the  wrong  side 
of  the  street.  A  furniture  store,  to  be  sure,  has  a  somewhat 
different  problem  from  the  ordinary  retailer,  and  can  sometimes 
afford  to  locate  out  of  the  main  traffic. 

2.  Non-advertisers. — This  second  type  of  merchants  must 
select  locations  which  naturally  obtrude  on  the  public  vision. 
The  circulation  of  traffic  may  be  compared  to  a  river  which  has 
overflowed  its  banks.  The  main  current  flows  steadily  on  while 
in  the  backwaters  there  is  little  motion  or  perhaps  an  eddy.  The 
merchant  who  succeeds  in  locating  on  the  main  artery  of  com- 
merce and  whose  merchandizing  plan  is  otherwise  suitable  must 
be  successful,  while  the  merchant  around  the  corner  finds  little 
traffic  coming  to  his  door. 

Cigar  and  drug  stores  endeavor  to  locate  near  some  point 
where  traffic  is  heavy.  In.  fact,  a  cigar  store  finds  it  difficult  to 
make  a  success  unless  it  is  on  a  corner.  The  United  Cigar 
Stores  have  gone  so  far  as  to  make  it  a  rule  that  their  stores  shall 
all  be  on  corners.  A  drug  store  can  take  an  inside  location 
provided  that  the  traffic  does  not  have  to  go  out  of  its  way  more 
than  a  short  distance. 


LOCATING  THE  STORE  35 

The  first  principle  of  locating  a  chain  store  is  this :  If  the  traffic 
cannot  be  made  to  come  to  the  store  by  special  inducement, 
such  as  advertising,  or  price,  then  the  store  must  be  located 
in  the  path  of  traffic. 

The  Locality. — Almost  every  chain  has  a  definite  objective 
when  going  into  a  community.  It  knows  exactly  where  its 
store  ought  to  be.  Rarely  is  it  possible  to  obtain  this  location  at 
once.  Often  it  is  a  case  of  waiting  years.  One  chain  has  a  lease 
on  property  in  San  Antonio  which  will  not  go  into  effect  for  seven 
years.  Another  lease  made  in  Norfolk  starts  in  five  years. 
The  real  estate  department  is  looking  well  into  the  future. 

The  future  of  the  community  must  be  considered  a  funda- 
mental factor  in  determining  location.  Some  cities  are  con- 
stantly moving,  others  are  safely  anchored.  Wherever  the 
high-class  residence  district  is,  the  high-class  business  district 
will  follow.  Business  has  gone  out  Euclid  Avenue,  in  Cleveland, 
Woodward  Avenue  in  Detroit,  and  East  Avenue  in  Rochester, 
N.    Y. 

But  where  there  are  physical  obstacles  to  this,  such  as  in  the 
case  of  a  steep  hill  in  Providence,  Rhode  Island,  or  rivers,  as  in 
Pittsburgh,  the  business  section  cannot  move  except  in  certain 
directions.  As  a  general  rule  populations  grow  up  hill.  If 
office  buildings  predominate  in  a  locality,  stores  selling  goods 
with  a  shopping  appeal  will  be  found  elsewhere. 

Charles  Nicholls,  Jr.,  president  of  the  Chain  Stores  Leasing  Co., 
gives  an  interesting  resum^  of  the  method  by  which  he  establishes 
the  value  of  a  piece  of  property: 

1.  Ascertain  the  population. 

2.  Determine  the  type  and  habits  of  the  people. 

3.  Investigate  main  industries  to  see  whether  location  is  good  for  men  or 
women.  Youngstown,  Altoona,  and  Akron  are  good  for  men.  Fall  River, 
Lowell,  and  New  Bedford  are  good  for  women,  because  of  the  large  number 
of  women  employed  in  the  factories  there. 

4.  Investigate  bank  deposits  and  clearings.  These  give  an  excellent 
history  of  business  conditions.  However,  it  is  necessary  to  ascertain  how 
these  are  divided  among  the  population.  It  might  be  in  a  medium-sized 
town  that  the  majority  of  the  clearings  were  due  to  a  small  number  of 
individuals. 

5.  Find  out  the  number  of  different  industries.  Find  out  also  the  pro- 
portion of  workmen  to  clerks.     Washington,  D.  C,  for  example,  has  a 


36  CHAIN  STORES 

large  clerical  population,  while  Schenectady  has  a  large  number  of  skilled 
and  unskilled  workmen. 

0.  After  having  considered  the  above  points,  the  proper  method  is  to 
study  the  prevailing  local  rental  conditions.  The  available  business  blocks 
are  investigated  with  relation  to  the  traffic.  Men's  locations  are  differ- 
entiated from  women's.  When  the  block  has  been  chosen,  secure  definite 
and  reliable  information  on  each  piece  of  property  and  the  possibility  of 
securing  it.  The  value  depends  mainly  on  the  volume  of  actual  business. 
One  location  might  be  worth  $3,000  to  one  man,  $4,000  to  another.  In 
addition,  it  is  necessary  to  take  into  consideration  the  drawing  power  of 
the  surrounding  territory. 

The  above  outline  of  method  sets  forth  the  general  course  of 
procedure.  It  brings  out  clearly  the  salient  points  to  be 
investigated. 

Analyzing  the  Traffic. — The  value  of  analyzing  the  traffic 
passing  by  a  potential  chain  store  site  lies  in  the  fact  that  statistics 
have  been  worked  out  carefully  by  the  different  chains  on  w^hich 
they  can  form  judgments.  They  can  compare  conditions  exist- 
ing in  the  old  stores.  They  know  the  percentage  of  people 
passing  a  given  point  who  will  enter  a  store  such  as  theirs.  For 
example,  the  United  Cigar  Stores  Company  has  a  fairly  definite 
idea,  after  it  has  analyzed  the  traffic,  not  only  how  many  men  will 
enter  its  store,  but  also  how  many  will  buy,  and  the  average  sale 
to  each  one.  Knowing  this,  it  is  comparatively  easy  to  figure 
out  what  an  individual  store  will  earn,  or  better  the  volume  of 
sales  each  individual  store  will  make.  In  each  case  allowance  is 
made  for  the  type  of  the  locality,  the  traffic,  etc. 

The  most  spectacular  feature  of  choosing  the  chain  store  is 
undoubtedly  the  clocking,  that  is,  determining  how  many  people 
pass  a  given  point,  to  what  type  they  belong,  whether  they  carry 
bundles,  their  sex,  age,  or  any  other  information  which  may  be 
desired.  Anywhere  from  one  to  four  men  is  required  to  gather 
this  information.  It  is  not  only  gathered  for  one  day  but  for 
several  days  and  even  weeks.  Some  chains  will  not  establish 
stores  unless  it  is  found  that  at  least  15,000  people  a  day  pass 
the  point  where  it  is  proposed  to  establish  the  store. 

Figure  2  shows  the  questionnaire  which  the  investigator  for 
a  bakery  chain  had  to  fill  in.  It  is  to  be  supposed  that  some 
definite  site  was  already  in  view  when  the  investigator  was  sent 
out  to  cover  some  location.     Here  the  hourly  traffic  was  gauged. 


LOCATING  THE  STORE  37 


How  near  is  shopping  centre 

State  nearest  bakery 

Distance  of  store  from  United  Cigar  Store 

Distance  of  store  from  Liggett's  Drug  Store 

Distance  of  store  from  Schulte  Cigar  Store 

Will  owner  agree  to  run  necessary  two-inch  gas  pipe  from  oven 

Details  of  Trappic  How  Many  People         Total 

Hours  Males         Females         Carried  Packages        Number 

7  A.M.  to    8  A.M 

8  A.M.  to    9  A.M 

9  A.M.  to  10  A.M 

10  A.M.  to  11  A.M 

11  A.M.  to  12  Noon 

12  Noon  to    1  P.M 

1  P.M.  to    2  P.M 

2  P.M.  to    3  P.M 

3  P.M.  to    4  P.M 

4  P.M.  to    5  P.M 

5  P.M.  to    6  P.M 

6  P.M.  to    7  P.M 

7  P.M.  to    8  P.M 

8  P.M.  to    9  P.M 

9  P.M.  to  10  P.M 

10  P.M.  to  11  P.M 

11  P.M.  to  12  Midnight 

Grand  totals 

Remarks 


Investigator's  Signature 


Approved 
Approved 


Fig..  2. — Questionnaire  used  by  bakery  chain  to  determine  attractive  store  sites. 


38  CHAIN  STORES 

divided  by  sexes.  It  was  also  important  to  ascertain  how  many 
people  carried  bundles. 

Some  such  plan  as  this  should  be  followed  in  nearly  all  cases 
where  new  stores  are  to  be  opened.  It  is  especially  important  to 
know  in  advance  the  size  of  this  volume  of  traffic  where  the 
store  does  not  rely  on  other  means  of  attracting  trade.  Depart- 
ment stores,  women's  ready-to-wear  stores,  specialty  shops,  and 
some  shoe  stores,  can  afford  to  take  a  chance  of  making  up  traffic 
deficiencies  by  their  own  efforts,  but  this  means  money  expended 
and  it  is  always  a  debatable  question  whether  increased  rents 
and  more  traffic  are  not  better  than  lower  rents  and  increased 
advertising  with  decreased  profits.  A  mistake  in  location  may 
prove  costly  because  often  stores  are  taken  on  long  term  leases. 
The  United  Retail  Stores  Corporation  finds  it  profitable  in  some 
cases  to  take  a  location,  formerly  devoted  exclusively  to  retailing 
tobacco  products,  and  make  it  a  candy  store,  devoted  exclusively 
to  the  retailing  of  confectionery. 

The  investigators  for  many  chains  have  to  go  much  further  in 
analyzing  the  traffic  than  is  indicated  in  this  bakery  question- 
naire. They  take  into  consideration  the  direction  of  the  traffic 
both  in  general  and  at  special  times  of  the  day.  There  are  very 
definite  currents  of  traffic  which  it  is  possible  to  set  down 
statistically.  In  some  cases  the  number  of  people  entering  other 
stores  in  the  same  line  of  business  is  noted  as  well  as  the 
number  of  persons  leaving  that  store  with  bundles.  In  suburban 
districts  it  is  frequently  found  valuable  to  analyze  the  number 
of  persons  returning  home  from  the  city  with  packages,  indicating 
that  purchasing  is  done  elsewhere.  In  many  cases  this  may  prove 
an  inducement  to  the  chain  store  to  enter  that  locality,  accepting 
this  foreign  purchasing  as  an  index  that  prices  in  the  district 
are  too  high. 

Grocery  stores  ordinarily  go  in  for  cheaper  locations.  In  the 
majority  of  cases  they  are  a  strictly  neighborhood  proposition,  the 
prevalent  cash-and-carry  feature  making  this  almost  universal. 
In  some  cases,  however,  stores  in  the  heart  of  the  business  dis- 
trict have  been  found  exceedingly  profitable,  particularly  when 
run  in  connection  with  some  lunch  room  or  restaurant  feature. 

Location  and  Buying  Habits. — It  is  quite  possible  that  15,000 
people  might  pass  a  given  location  daily,  yet  that  location  prove 


LOCATING  THE  STORE  39 

useless,  simply  because  the  people  and  the  product  were  not 
suited.  People  going  from  the  railroad  station  to  the  business 
district  to  work  will  often  stop  and  purchase  tobacco  and  candy, 
but  they  rarely  would  have  time  to  shop  in  a  department 
store. 

Mr.  Nicholls  says:  "I  analyze  the  travelling  population  care- 
fully. I  notice  where  people  get  on  and  off  the  cars.  I  classify 
the  general  types.  I  can  tell  the  'drop  in'  type,  which  is  quite 
different  from  the  type  which  comes  prepared  to  purchase. 
There  is  also  the  station  traffic,  the  commuters.  These  are 
always  in  a  hurry." 

Every  location  will  have  a  certain  type  of  purchaser,  and  this 
type  of  purchaser  varies  at  different  times  of  the  day.  Now  from 
this  it  is  possible  to  draw  rather  definite  conclusions.  It  is 
evident  that  some  locations  are  particularly  fitted  to  some  types  of 
stores.  For  example,  the  five  and  ten  cent  store  does  90  per  cent, 
of  its  business  with  women.  Its  usual  policy  is  to  locate  as 
near  as  possible  to  a  department  store,  thus  getting  the'  benefit 
of  the  department  store's  great  drawing  power.  If  a  department 
store  is  not  available,  some  other  magnet  which  draws  people  such 
as  a  theatre  or  a  drug  store  will  do  although  the  latter  are  not 
considered  nearly  so  effective.  Since  a  five  and  ten  cent  store  in 
itself  is  not  important  enough  to  draw  people  to  it,  it  must  rely  on 
putting  itself  in  the  way  of  its  potential  patrons.  It  will  not  be  a 
success  in  the  office  district  where  the  great  majority  of  pedes- 
trians are  men. 

It  has  long  been  known  that  sides  of  the  street  differ  from 
each  other  in  the  amount  and  nature  of  business  done.  Ordi- 
narily the  shady  side  of  the  street  is  given  over  to  women's  trade 
and  rentals  are  25  per  cent,  higher.  Department  stores  are  an 
example  of  this.  There  are  exceptions  in  Boston  on  Tremont  St. 
where  the  Common  makes  it  impossible  to  seek  the  shady  side, 
and  in  Rochester,  N.  Y.,  where  the  sunny  side  was  originally 
chosen  and  no  change  has  since  been  made. 

In  similar  fashion,  one  side  of  the  street  may  be  good  for 
candy  stores  and  fatal  to  shoe  stores.  Going  even  further,  one 
side  of  the  street  may  be  good  for  expensive  shoes  and  bad  for 
cheap  shoes,  and  vice  versa.  A  cigar  store  which  was  a  failure 
on  one  side  of  the  street  might  be  successful  on  the  other  side; 


40  ■       CHAIN  STORES 

and  this  can  be  predetermined  to  a  great  extent  by  analyzing 
the  traffic. 

Going  back  for  a  moment  to  the  population  of  the  city,  we 
find  it  is  possible  in  many  cases  to  determine  the  per  capita 
consumption  in  a  given  city  or  district  of  a  given  product.  By 
gathering  statistics  such  as  these,  George  J.  Whelan,  founder  of 
the  United  Cigar  Stores,  was  able  to  establish  his  locations  in 
more  scientific  fashion  than  would  otherwise  have  been  possible. 
For  example,  he  made  up  the  following  list  of  the  per  capita 
consumption  of  tobacco  in  the  largest  cities: 

San  Francisco $4.06  Rochester,  N.  Y $0.99 

Atlantic  City 2.55  Chicago 0.63 

New  York 1 .74  Spokane 0.60 

St.  Louis 1.21  Milwaukee 0.22 

Such  figures  are  readily  ascertainable  by  the  ordinary  methods 
of  commercial  research.  By  a  glance  at  the  above  table  it  is 
evident  that  a  great  many  more  people  would  have  to  pass  a 
United  Cigar  Stores  location  in  Milwaukee  than  in  San  Francisco 
before  the  same  volume  of  sales  could  be  obtained. 

Such  a  list  as  the  above  is  of  only  temporary  value  and  must 
not  be  relied  on  too  far.  Buying  and  consuming  habits  are 
constantly  changing.  New  styles,  new  people,  new  industries, 
all  have  a  bearing.  Therefore,  such  figures  must  be  constantly 
kept  up  to  date.  An  increase  in  per  capita  consumption  would 
mean  more  stores,  a  decrease  a  policy  of  curtailment  or  of 
artificial  stimulation  of  consumption. 

City  and  Suburban  Locations. — In  the  earlier  stages  of  the 
chain  store  development,  many  stores  were  located  hit-or-miss. 
Some  of  them  succeeded  and  some  of  them  failed.  But  those 
that  failed  went  out  of  business  for  good  and  sufficient  reasons. 
There  was  nothing  intangible  about  their  failure.  Many  of 
them  succeeded  because  they  could  not  help  doing  so.  The 
business  was  forced  upon  them.  But,  in  general,  the  larger 
chains  have  always  followed  a  standard  policy  in  choosing 
locations,  and  the  smaller  chains  can  only  hope  to  compete  by 
doing  the  same.  Locations  are  always  becoming  available 
through  growth  in  population  but,  generally  speaking,  locations 
are  becoming  scarcer  and  competition  keener. 

Chains  normally  start  in  large  cities,  spread  in  that  city  and 


LOCATING  THE  STORE  41 

then  jump  to  another  large  city.  This  was  the  manner  in  which 
the  Great  Atlantic  &  Pacific  Tea  Co.  started  as  well  as  the 
United  Cigar  Stores.  Later  they  return  and  comb  up  the  smaller 
communities.  Woolworth  started*  in  a  small  town  and  then 
spread  to  larger  communities.  Penney  follows  a  policy  of 
clinging  preferably  to  the  smaller  communities,  and  in  this  way 
effects  many  economies,  at  the  same  time  having  a  monopoly 
of  the  chain  department  store  field  in  these  localities. 

In  cities,  the  most  likely  locations  are  taken  first.  Expansion 
then  extends  to  the  suburbs,  and  finally  to  the  smaller  towns 
nearby  which  fall  within  the  warehouse  radius.  In  obtaining 
data  on  suburban  locations,  a  favorite  method  is  to  watch  the 
delivery  route  of  some  independent  competitor  and,  if  it  is 
judged  that  the  volume  of  trade  is  heavy  enough,  a  store  is 
opened.  Some  grocery  chains  have  had  surprising  successes  in 
quality  suburban  locations,  seemingly  well  filled  with  flourishing 
businesses. 

Individual  Policies. — It  is  an  interesting  psychological  fact 
that  customers  dislike  walking  upstairs  to  make  a  purchase. 
Women  will  always  go  down  to  the  basement  rather  than  up  to 
the  second  floor  of  a  department  store.  The  United  Cigar 
Stores  Co.  has  capitalized  this  trait.  It  avoids  raising  the  level 
of  the  store  either  a  step  above  or  below  the  street,  making 
it  exactly  even.  In  fact  this  is  now  becoming  standard  practice 
among  many  retailers. 

Furthermore,  the  store  entrance  is  set  at  an  angle  so  that  traffic 
on  either  street  can  readily  see  into  the  store.  In  this  way,  the 
corner  location  is  made  to  yield  full  value.  In  addition,  it 
prevents  congestion  as  well  as  giving  a  pleasing  impression. 
The  United  people  never  hesitate  to  open  one  store  across  from 
one  of  their  own  shops  already  operating  if  traffic  conditions 
seem  to  warrant.  Wherever  this  policy  has  been  followed,  it 
has  been  found  that  there  was  no  falling  off  of  business  in  the 
old  store. 

As  a  matter  of  fact,  chain  stores  show  a  tendency  to  cling 
together  in  localities.  Chain  grocery  stores  often  occupy  the 
same  block,  and  frequently  are  located  next  to  each  other. 

Location  Experts. — There  has  been  much  controversy  as  to 
how  efficient  the  chain  store  leasing  experts  actually  are.     It  has 


42  CHAIN  STORES 

been  claimed  that  only  a  local  real  estate  man  is  able  to  appraise 
the  value  of  a  piece  of  property  at  its  true  worth.  There  is  no 
doubt  that  the  chain  store  realty  man  is  over-charged  because 
it  is  well  known  the  chains  are  able  to  pay.  It  is  even  possible 
that  a  chain  store  is  willing  to  pay  more  for  a  certain  location 
than  the  previous  independent  occupant.  But  it  is  usually  for 
good  and  sufficient  reasons.  When  a  chain  store  expert  has 
analyzed  a  location,  he  knows  whether  that  location  is  going 
to  prove  satisfactory  and  the  company  is  willing  to  risk  its  money 
on  the  accuracy  of  his  judgment. 

One  chain  store  company  had  seventeen  stores  in  operation. 
Before  opening  the  eighteenth,  it  called  in  an  expert.  He 
picked  out  a  location  and  submitted  an  estimate  of  the  first  years' 
sales  which,  in  actual  practice,  turned  out  to  be  only  $8,000  less. 
The  United  Cigar  Stores  scouts  have  done  even  better  than  this. 
So  highly  developed  are  their  methods  that  they  have  often 
given  estimates  of  the  first  six  months'  business  which  came 
within  $200  of  actual  sales. 

When  it  is  possible  to  obtain  such  accuracy  as  this,  there 
seems  little  possibility  of  failure.  But  chain  store  location 
experts  must  be  highly  paid.  Their  ability  to  forecast  is  not  ob- 
tained immediately,  but  is  the  fruit  of  long  and  tedious  observa- 
tion. They  are  assisted  by  a  large  number  of  records,  some 
companies  having  statistics  in  their  files  on  almost  every  city  of 
size  in  the  United  States. 

One  of  the  largest  five  and  ten  cent  stores  believes  that  intuition 
and  "horse  sense"  have  much  to  do  with  opening  new  stores, 
coupled  with  the  usual  standard  investigations.  It  rarely 
happens,  according  to  them,  that  an  overestimate  is  made. 
Occasionally,  in  opening  up  a  new  location,  the  "percentage 
lease"  is  resorted  to,  the  lessee  paying  as  rent  a  certain  per- 
centage of  his  gross  sales. 

The  Real  Estate  Department. — Many  of  the  larger  chain 
store  systems,  as  has  been  said,  maintain  a  highly  organized 
real  estate  department  to  take  care  of  property  and  buildings, 
make  improvements,  close  leases,  improve  property,  etc.  But 
it  is  only  the  larger  chains  that  can  afford  to  install  a  special 
organization  for  this  purpose.  In  the  smaller  chain,  one  or 
two   individuals  may  have   charge  of  the    real    estate,    while 


LOCATING  THE  STORE  43 


Date 

City Population . 

Number  of  Railroads Names .... 


Number  of  Street  Car  Lines Names. 

Description  of  Property 

Location 

Condition  of  Store 


Dimensions 

Term  of  Lease 

Rental 

Allowance  by  Owner 

Owner's  Name 

Agent 

Date  when  possession  can  be  had 

Time  necessary  to  make  repairs  and  alterations. 
Give  list  of  adjacent  stores  in  block  both  sides. . 


How  long  has  present  store  been  vacant? . 
Inquire  of  three  adjacent  store  owners. . . . 


How  many  vacancies  in  block  both  sides?     No 

How  many  tenants  in  present  store  in  last  five  years?. 

Give  reason  for  change  of  tenants 

Do  you  approve  of  store  for  Bakery? 

Give  your  reasons 


How  many  bakeries  in  town?. 
What  brands  of  bread  sold?. . 
How  near  are  markets? 


Fig.  3. —  Report  on  possible  property  for  use  by  chain  bakery. 


44  CHAIN  STORES 

in  the  very  small  chains  it  forms  only  a  portion  of  one  person's 
duties. 

The  location  expert  locates  the  store.  He  may  have  done 
all  that  was  in  his  power  to  ensure  the  prosperity  of  this  link  in 
the  chain  by  the  exercise  of  his  experience  and  judgment;  but 
the  real  estate  department  must  carry  on  his  work.  Many 
events  occur  which  may  have  more  or  less  important  bearing  on 
the  future  of  the  chain.  If  the  business  falls  off  it  is  not  alone 
the  function  of  the  sales  department  to  ascertain  why,  but  it 
also  comes  within  the  province  of  the  realty  department.  Popu- 
lations are  not  stationary.  They  move.  Residential  areas 
gradually  become  business  sections.  A  large  factory  will  change 
the  character  of  a  neighborhood  in  a  few  years.  A  foreign  speak- 
ing population  may  come  in  whose  habits  of  living  are  utterly 
unlike  those  of  the  previous  population. 

If  the  realty  department  finds  some  such  event  as  this  taking 
place,  and  the  store  manager  is  usually  well  acquainted  with 
neighborhood  events,  it  may  be  highly  inadvisable  to  renew  a 
lease  for  a  long  period  at  the  same  rent. 

But  neighborhoods  do  not  always  deteriorate.  In  many  cases, 
locations  in  the  outskirts,  which  apparently  now  are  worth  little, 
and  which  handle  but  a  fraction  of  the  trade  turned  over  by  the 
down  town  establishments,  may,  in  the  course  of  ten  years,  be  the 
centers  of  large  and  thriving  populations. 

Figure  3  shows  how  carefully  the  same  bakery  chain  mentioned 
before  reports  on  real  estate  locations,  in  addition  to  clocking 
and  analyzing  the  traffic.  The  population  of  the  city,  the 
number  of  railroads  and  street  car  lines,  the  condition  of  the 
property,  the  rental,  time  of  possession,  adjacent  vacancies, 
everything  that  can  throw  light  on  the  real  value  of  the  location, 
is  put  down.  The  number  of  times  tenants  have  changed  in  the 
last  five  years,  and  the  reasons  for  their  changes,  are  found  out. 

No  detail  which  will  augment  the  success  for  the  chain  is  too 
small  to  consider.  In  real  estate  dealings,  as  elsewhere,  it  is  the 
spirit  of  efficiency,  of  standardized  operations,  which  must  make 
itself  felt.  Some  idea  of  the  detail  involved  in  the  problem  of 
locating  a  store  is  indicated  by  the  questionnaire  form  in  the 
following  five  pages: 


LOCATING  THE  STORE  45 

REAL  ESTATE  REPORT 


City 

.  State 

Retail  Zone  Boundaries,  by  street. . 

Traffic  Points 

Principal  Retail  Streets 

1 from to 

.  side . 

front  ft.  rate 

Class  of  establishments 

General  Character  Foot  Traffic . . 

2 from to 

.  side . 

front  ft.  rate 

Class  of  establishments 

General  Character  Foot  Traffic . . 

3 from to 

.  side . 

front  ft.  rate 

Class  of  establishments           .... 

General  Character  Foot  Traffic . . 

In  Our  Judgment  Best  Location  for  a  Retail  Store  for  Women's 

Articles  Would  Be  : 

1 from to 

.  side . 

front  ft.  rate 

2 from to 

.  side . 

front  ft.  rate 

In  Our  Judgment  Best  Location 

FOR  A 

Retail  Store  for  Men's 

Articles  Would  Be: 

1 from to 

.  side . 

front  ft.  rate 

2 from to 

.  side . 

front  ft.  rate 

In  Our  Judgment  Best  Location 

FOR  A 

Retail  Store  for  a  Gen- 

eral  Line  Would  Be  : 

1 from to 

.  side . 

front  ft.  rate 

2 from to 

.  side . 

front  ft.  rate 

Best  local  broker  or  correspondent. 

Remarks 

46  CHAIN  STORES 


Men's  line 
Suitable  for:  I  Women's  line 

Building  No I  General  line 

Available 

between and side 

story Erected 

Constructed  of 

Condition 

Other  tenants 


Neighbors :  Right 

Left 

Opposite 

Others 

Sidewalks,  kind Width 

Street,  kind Width Lighting . . . 

Water  Supply Toilets 

Heating 

Fire  Protection 

Store  self-contained  or  sub-divided?. . . .' 

Partition  walls 

Insurance  rate  on  building Fixtures . 

Insurance  rate  on  merchandise 

Restrictions,  if  any 

Building  owned  by 

Remarks 


LOCATING  THE  STORE  47 


Suitable  for: 
Store 


Men's  line 
Women's  line 
General  line 


Feet  front feet  deep.      Ceilings feet 

Feet  wide  in  rear 

Display  Windows:  Style 

How  many  ? 

Size Lighting 

Remarks 

Fixtures,  if  any 


Shelving 

How  is  store  entrance? 

Level  or  steps  from  sidewalk 

Rear  or  shipping  entrance 

Windows 

Lighting 

Heating 

Condition  of  floor Load . 

Condition  of  side  walls 

Condition  of  ceilings 

Remarks 


48  CHAIN  STORES 


Basement 

Feet  front feet  deep.     Ceilings feet 


Stairway 

Elevator 

Outside  entrance 

Fixtures 

Shelving 

Floor:  Material 

Condition 

Drainage 

Windows 

Lighting 

Condition  of  side  walls. 
Condition  of  ceilings. . . 

Remarks 

Sub-basement 


Any  storage  yard  to  building?. 


Any  storage  shed  outside?. 


LOCATING  THE  STORE  49 


Suitable  for: 
Second  Story 


Men's  line 
Women's  line 
General  line 


.  Feet  front feet  deep.     Ceilings feet 


Stairway  to  main  floor :  Width Height  of  steps . 

Number  of  steps Finish 

Balustrade Landings 

Front  Display  Windows 

Other  Windows 

Any  large  central  opening  to  main  floor? 


If  not,  the  possibilities  for  such  an  opening . 


Partitions 

Fixtures 

Shelving 

Condition  of  floor Load . 

Condition  of  side  walls 

Condition  of  ceilings 

Lighting 

Heating 

Remarks 

What  arc  floors  above? 


50  CHAIN  STORES 

Renting  Stores. — How  much  rent  can  a  chain  store  afford  to 
pay?  This  is  a  difficult  question  to  answer.  But  it  has  been 
established  by  experts  that  there  are  certain  percentages  of 
gross  receipts  which  should  govern  the  rent  paid  by  different 
types  of  businesses.  For  example,  high  class  retail  stores  which 
are  large  advertisers  can  afford  to  pay  six  per  cent,  of  gross  receipts. 
These  figures  should  be  taken  as  applying  over  a  considerable 
period,  possibly  for  the  entire  period  of  the  lease.  During  this 
period,  receipts  should  increase  in  proportion  to  rent. 

Taking  the  ratios  up  in  more  detail,  Mr.  Nicholls  has  compiled 
the  following  list: 

Shoe  stores 8 

Department  stores 3 

Five  and  tens — non-advertising 5 

Non-advertising  specialty  stores 8 

Theatres  and  hotels 9 

Drug  stores,  candy,  fruit,  etc 10 

Grocery  stores 10 

Cigar  stores 6-8 

Barber  shops,  shoe  shining  establishments,  etc 12 

Cloak  and  suit 6 

With  such  a  wide  variation,  it  is  apparent  that  few  varying 
types  of  chains  will  desire  the  same  location.  Such  a  table  as 
the  above  is  valuable  in  making  estimates  for  new  locations  and 
in  judging  the  performances  of  old  stores.  A  great  many  stores 
may  do  better,  but  if  one  does  less,  it  is  a  sign  of  trouble. 

Many  policies  are  followed  in  regard  to  renting  stores.  Some 
chains  prefer  to  secure  sites  that  will  do  for  purchase.  Then 
they  rent  superfluous  space  to  other  retailers.  In  some  cases, 
this  policy  has  resulted  in  the  chain  store's  obtaining  its  portion 
of  the  building  free  of  charge,  the  overhead  of  the  building  being 
carried  from  rent  derived  from  the  other  stores. 

The  United  Cigar  Stores  are  famous  as  an  exponent  of  this 
policy.  The  real  estate  department  purchases  a  corner,  remodels 
the  stores,  takes  its  own  portion  on  the  corner  and  rents  the  rest. 
Since  the  formation  of  the  Retail  Stores  Corporation,  it  has  been 
possible  for  them  to  secure  locations  and  use  them  for  either  candy 
or  cigar  stores,  and,  in  course  of  time,  it  is  quite  possible  that 
their  retail  activities  will  embrace  further  lines  of  retailing.     In 


LOCATING  THE  STORE  51 

this  case,  the  same  block  might  hold  several  retail  stores  operated 
by  different  chains,  all  subordinate  to  the  holding  company. 

Locations  which  the  real  estate  department  pick  up  cheaply 
may  be  sold  at  a  profit  and  still  provide  for  the  future  of  the 
company's  chain  store  in  that  location. 

The  real  estate  department  has  frequent  occasion  to  scruti- 
nize buying  habits.  If  it  buys  a  building,  it  wants  to  know 
whether  the  location  is  suitable  for  a  grocery,  a  drug  store,  a 
department  store,  a  bakery,  etc.  It  is  almost  as  important 
that  the  other  stores  surrounding  the  chain  store  be  prosperous 
as  that  the  chain  store  be  prosperous  itself.  Prosperity  attracts 
trade.  If  the  chain  store  selects  its  own  neighbors,  as  it  can 
often  do  by  calling  the  attention  of  non-competing  businesses 
to  excellent  qualities  of  the  location,  it  can  ensure  the  class  of 
trade  to  which  it  wishes  to  appeal.  That  is,  to  its  own  pulling 
power  is  added  the  combined  pulling  power  of  all  the  other  stores 
and,  since  the  buying  appeal  of  the  chain  store  is  largely  to  the 
eye  and  the  pocket  book  of  the  customer,  any  increase  in  pur- 
chasing traffic  by  the  store  is  advantageous.  It  is  well  known 
that  people  who  come  to  buy  in  one  store  often  buy  articles  which 
they  need  in  adjacent  stores  rather  than  go  elsewhere. 

Wherever  the  chain  store  realty  department  decides  to  hold  on 
to  the  property,  it  collects  all  rents  and  reports  to  the  central 
organization.  It  also  collects  rent  from  the  chain  store  itself. 
This  is  often  necessary  since,  although  the  chain  realty  depart- 
ment should  operate  at  a  profit,  it  is  often  necessary  to  operate  at 
a  loss  due  to  large  expenditures  in  improving  new  locations,  pur- 
chasing property  in  advance  of  the  city's  growth,  etc. 

The  Childs  Company  has  data  on  practically  every  place  suited 
to  its  needs  in  the  United  States.  This  detailed  information 
renders  it  fairly  easy  for  it  to  keep  ahead  of  its  expansion 
programme.  It  is  devoted  to  the  policy  of  making  long  term 
leases,  from  21  to  99  years. 

When  a  chain  store  organization  attains  any  size,  there  is  no 
lack  of  locations  offered  for  its  inspection.  One  of  the  chain  store 
leasing  companies  has  an  average  of  five  new  locations  brought  to 
its  attention  daily,  and  each  one  of  these  is  carefully  investi- 
gated. One  grocery  chain  of  50  stores  in  the  Middle  West  says 
"our  stores  have  attained  such  a  standing  in  the  community 


52  CHAIN  STORES 

that  the  developers  of  every  new  allotment  in  the  city  come  to 
us  and  offer  us  a  center  lot  for  one  of  our  stores.  Other  people 
continually  offer  us  vacant  storerooms  for  rent,  or  try  to  sell 
us  lots.  Right  now  we  own  about  18  lots  on  which  we  shall 
build  within  the  next  three  to  five  years.  In  the  meantime, 
we  will  rent  several  stores  if  we  find  the  kind  we  want,  in  the  right 
location,  and  if  the  rent  is  not  too  high.  If  the  rent  is  too  high, 
we  wait  for  it  to  come  down,  or  look  around  for  a  place  to 
build." 

Building  vs.  Renting. — It  is  probably  safe  to  say  that  the 
great  majority  of  chain  stores  are  rented,  although  this  depends 
to  some  extent  on  the  type  of  business.  This  avoids  a  great  deal 
of  trouble  on  the  part  of  the  company  in  looking  after  a  large 
real  estate  department  and  the  worries  that  a  real  estate  depart- 
ment always  brings  with  it.  Then,  after  all,  the  primary  func- 
tion of  the  chain  store  company  is  retailing.  Real  estate  is  only 
a  by-product  of  the  industry,  so  to  speak. 

But  many  chain  stores  have  peculiar  requirements.  They  wish 
a  standardized  front  to  which  the  neighbors  may  object.  Most 
chain  store  fronts  are  made  in  such  a  way  as  to  be  readily  recog- 
nizable. Therefore,  to  get  in  certain  locations  it  may  be  necessary 
to  purchase  and  remodel. 

Purchasing  and  building  requires  more  capital  and  conse- 
quently a  larger  investment.  There  is  more  to  lose  if  the 
property  deteriorates,  although  there  is  also  more  to  gain  if  it 
improves.  The  chain  grocery  store  ordinarily  prefers  a  one 
story  building  with  a  standardized  front  and  standardized 
fixtures.  A  grocery  chain,  naturally  choosing  a  low  priced 
location,  rarely  finds  it  profitable  to  build  additional  stories  to 
rent  to  tenants.  The  rental  from  the  upstairs  portion  does  not 
justify  the  added  investment. 

The  problem  of  a  local  chain  is,  in  a  way,  quite  different 
from  that  of  a  national  chain.  The  local  chain  officials,  at  the 
start,  are  well  acquainted  with  the  character  of  the  townsmen, 
and  the  buying  habits  of  the  people.  They  know  by  daily  ex- 
perience what  the  national  chain  investigator  has  to  learn  from 
statistics.  That  they  often  fail  to  achieve  true  success  does  not 
disprove  the  fact  that  their  initial  opportunity  is  better  for 
profits  than  the  national  chain.    They  are  on  the  spot,  they  are 


LOCATING  THE  STORE  53 

known,  they  are  compact,  and  their  problems  are  comparatively 
simple. 

Quality  Locations. — For  many  years,  in  fact,  until  quite 
recently,  chain  stores  were  regarded  as  merchandising  ventures 
exclusively  devoted  to  the  interests  of  the  poorer  classes.  To  be 
seen  going  in  or  out  of  a  chain  store  was  avoided.  Merchants  on 
the  better  streets  frowned  upon  the  advent  of  the  chain  store. 
When  Childs  bought  their  way  on  Fifth  Avenue  in  New  York 
City,  there  was  great  nodding  of  heads  and  portents  of  failure. 
But  the  Childs  organization  went  ahead  and  erected  a  building, 
letting  all  but  the  ground  floor.  There  was  only  room  for  29 
tables,  116  seats  in  all.  But  the  profit  on  each  of  these  116  chairs 
was  carefully  reckoned  within  a  cent  or  two  on  daily  turnover. 
These  statistics  had  been  secured  by  applying  the  results  of  long 
experience  to  the  traffic  passing  the  door. 

When  the  five  and  ten  cent  store  decided  on  Fifth  Avenue  for  its 
thousandth  store,  Mr.  Woolworth  went  so  far  as  to  become  a 
member  of  the  Fifth  Avenue  Association,  The  bright  red  signs 
were  kept  but  the  window  dressing  was  carried  only  half  way  up. 
It  is  reported  the  location  makes  no  difference  in  the  number  of 
mousetraps  sold  and  the  luncheon  counter  is  just  as  busy  at  noon 
as  it  is  anywhere  else. 

It  is  said  the  United  Cigar  Stores  pay  $27,000  a  year  rent 
for  one  of  its  Fifth  Avenue  locations.  The  company's  archi- 
tect was  told  to  design  what  would  be  the  most  beautiful  cigar 
store  in  the  country.  The  exterior  is  in  black  and  gold  marble 
with  the  name  of  the  company  in  specially  designed  letters  of 
bronze  and  gilt.  The  familiar  red  signs  are  made  narrower  and 
less  conspicuous.  The  bases  of  the  counters  and  the  showcases 
are  black  and  gold  marble.  The  showcase  frames  and  all  decora- 
tions are  of  bronze.  The  windows  are  dressed  with  the  care  of  a 
jewelry  store. 

Quality  locations  illustrate  one  very  important  trend  in  chain 
store  development,  and  that  is  the  tendency  of  chain  store  sys- 
tems to  break  into  the  exclusive  retailing  sections  and,  what  is 
more,  make  a  success  in  their  new  surroundings. 

Conclusions. — One  of  the  reasons  for  chain  store  success  may 
undoubtedly  be  ascribed  to  scientific  locating  of  member  stores. 
No  retailer  can  afford  to  pass  over  the  opportunity  presented 


54  CHAIN  STORES 

him  to  capitalize  on  the  location.  The  fact,  that  the  chains 
have  been  able  to  go  in  under  the  local  retailers'  noses  and  cap- 
ture the  best  sites  merely  goes  to  show  how  badly  new  principles 
of  retailing  were  needed  in  the  community. 

The  congested  districts,  as  a  rule,  offer  the  best  opportunities 
because  of  their  compactness.  The  product,  however,  and  the 
chain  policy,  may  determine  otherwise.  It  may  be  desirable  to 
obtain  the  place  which  the  most  people  pass  every  day,  such  as  is 
the  United  Cigar  Stores  policy,  or  the  company  may  be  willing  to 
seek  less  public  locations  at  a  lower  rent  because  of  other  facilities 
for  attracting  trade.  Either  extreme  is  unsafe.  A  great  volume 
of  sales  will  carry  a  large  overhead,  but  without  this  large  volume 
of  sales  the  large  overhead  would  be  a  constant  drag.  Again, 
low  rent  in  a  back  street  might  be  uneconomical  because  of  the 
great  opportunities  for  that  store  in  a  better  location. 

Every  member  of  the  chain  organization  should  constantly 
be  on  the  lookout  for  new  locations.  The  man  who  sees  oppor- 
tunity first  is  the  man  who  succeeds,  and  in  many  cases  a  desirable 
location  means  dollars  to  the  chain  which  is  first  to  come  on  the 
scene. 

The  whole  question  of  location  may  be  summed  up  in  a  few 
words.  The  site  of  the  store  should  vary  in  distance  from  the 
traffic  centers  directly  as  the  selling  appeal  of  the  chain.  For 
example,  men  will  not  go  out  of  their  way  to  buy  cigars,  or 
candy,  or  razor  blades,  but  they  will  go  out  of  their  way  to  get 
a  pair  of  shoes  or  a  suit  of  clothes.  The  first  element  in  appeal 
is  the  nature  of  the  product,  whether  it  is  a  convenience  article, 
that  is,  a  necessity,  or  a  shopping  article,  one  which  people  will 
spend  time  to  hunt  for,  the  second  is  the  price  of  the  product, 
and  the  third  is  the  publicity  of  the  chain.  The  location  of  the 
store  is  almost  inseparable  from  a  discussion  of  these  topics,  as 
will  be  shown  later. 


CHAPTER  IV 
THE  MEMBER  STORE 

Outline 

Size. 

1.  Large  enough. 

(a)  To  hold  stock. 
(6)  To  hold  clerks, 
(c)   To  hold  customers. 

2.  Results  of  conservation  of  space. 

(a)  Saving  in 

1.  Rent. 

2.  Expense  of  cleaning. 
(6)   Increased  selling  efficiency. 

3.  Special  problems  of  smaller  chains. 

(a)  Necessity  of  keeping  stock  in  stores  where  warehouse  is  lacking 
or  too  small. 
Appearance  of  stores. 

1.  The  store  front. 

(a)  Uniform 

1.  In  color. 

2.  In  lettering. 
(6)   Distinctive 

1.  In  appeal. 

2.  Easy  to  recognize. 

2.  The  interior. 

(o)  Equipment  standardized. 

1.  Easy  to  equip  new  stores. 

2.  Restore  old  equipment  damaged  by  fire,  flood,  etc. 

(b)  A  mathematical  problem. 

3.  Arrangement  of  stock. 

(a)  Most  in  demand 

1.  Near  front  of  store 

2.  Nearest  clerk. 
(6)  Aisles  wide. 

(c)  Arrangement  with  regard  to 

1.  Movement  of  traffic. 

2.  Lighting. 
Display. 

1.  Of  stock 

56 


56  CHAIN  STORES 

(o)  In  windows. 

(6)  On  counters. 

2.  Importance  of  price  tags. 

(a)  Counter  display. 

(b)  Manufacturers'  helps. 
Window  display. 

1.  Difference  in  policies 

(a)  Centralized  at  headquarters. 
(6)  Managers  allowed  to  trim. 

2.  Importance  of,  in  selling. 

3.  Analyzing  product  for  display  purposes. 

(a)  Influence  of  character  of  traffic. 
(6)  Technique  of  window  display, 
(c)    Expense. 

4.  The  window  trimmer. 

5.  Teasers  and  window  pasters. 
Counter  display. 

1.  Tie  up  merchandising  with  display. 


CHAPTER  IV 
THE  MEMBER  STORE 

The  chain  idea  may  be  likened  to  an  octopus.  The  central 
organization  is  the  head  and  the  branch  stores  are  the  tentacles. 
If  one  tentacle  is  cut  off,  another  grows  to  take  its  place.  It 
is  this  way  with  the  member  stores.  No  one  of  them  is  vitally 
important  for  the  organization,  and  if  any  store  shows  marked 
weakness,  it  can  immediately  be  amputated,  and  another  one 
started.  This  opening  of  new  stores  has  become  a  real  science 
in  some  chains.  The  process  has  been  standardized  so  that 
nothing  further  is  required  than  to  start  the  machinery  moving 
and  in  consequence  on  the  appointed  date  the  store  is  ready  for 
occupancy  by  the  selling  force,  complete  down  to  the  last  detail. 

We  have  discussed  in  a  previous  chapter  the  various  problems 
connected  with  locating  the  store.  This  chapter  is  a  logical 
continuation  of  the  same  topic.  We  investigate  the  amount  of 
floor  space  required  for  various  types  of  stores,  the  fixtures, 
the  display,  the  window  trims,  and  the  general  appearance  of  the 
store.  We  also  discuss  the  stock  and  the  arrangement  by  order 
of  goods  or  by  various  departments.  The  keynote  which  is 
again  sounded  is  standardization.  The  nearer  alike  one  store 
is  to  another,  the  easier  it  is  to  make  repairs,  replenish  stock, 
shift  selling  force,  etc. 

The  success  of  a  chain  organization  is  almost  directly  propor- 
tionate to  the  care  it  takes  of  detail,  and  the  size,  equipment, 
and  arrangement  of  stock  in  the  retail  stores  is  of  very  great 
importance.  In  a  variety  of  ways,  it  eliminates  waste,  and 
eliminated  waste  means  increased  profits.  Furthermore,  it  is 
just  as  important  for  the  small  chain  to  start  with  standard 
equipment  as  it  is  for  the  large  chains,  even  although  alterations 
may  cost  more. 

The  Size  of  the  Store. — The  store  should  be  just  large  enough 
to  hold  the  stock,  the  clerks,  and  the  customers.     Every  inch  of 

57 


58'  CHAIN  STORES 

space  over  these  requirements  is  waste.  For  an  example  of  the 
utility  of  this  practice,  it  is  necessary  to  go  back  to  the  larger 
chains.  In  this  case,  the  president  of  the  United  Cigar  Stores, 
then  George  J.  Whelan,  decided  that  his  stores  must  be  com- 
pact. As  a  result,  he  saved  rent,  saved  space,  saved  cleaning 
expenses,  and  brought  practically  every  article  for  sale  within 
reach  of  the  clerk.  The  majority  of  the  company's  stores  are 
one  size,  which  makes  it  possible  to  use  standard  equipment  in 
each  store. 

The  owner  of  a  small  chain,  or  the  owner  of  one  retail  store  who 
is  planning  to  branch  out  and  establish  one  or  more  other  stores 
may  ask:  How  shall  I  know  how  large  to  make  my  stores?  And 
what  shall  I  do  with  the  rest  of  the  space?  You've  shown  me 
how  valuable  it  is  to  have  a  location  in  the  right  place,  but  the 
only  location  I  can  get  there  is  much  too  large  for  the  business  I 
expect  to  do.  The  chains  which  make  a  practice  of  owning  their 
own  realty  make  their  own  stores  the  regular  size  and  rent  the 
rest  of  the  space  to  others.  If  the  store  is  too  large,  get  the  owner 
to  turn  it  into  two  stores  and  thereby  make  more  rent. 

There  is  one  note  of  caution  to  be  sounded  here.  A  small 
chain  cannot,  as  a  rule,  concentrate  its  stock  in  such  tiny  spaces 
as  the  larger  chains  possessing  much  quicker  turnover  and 
adequate  means  of  supplying  deficiencies  in  stock  almost  imme- 
diately. This  is  one  of  the  problems  of  the  small  chain — to  have 
ample  stock  yet  achieve  rapid  turnover.  Thus  a  chain  with  two 
or  three  links  may  find  it  advisable  to  have  slightly  larger  stores 
since  it  must  keep  its  warehouse  in  the  stores  themselves. 

For  example,  there  is  a  big  variation  in  the  size  of  chain  grocery 
stores.  Many  of  them  are  mere  holes  in  the  wall,  using  bins  for 
shelves  and  representing  a  very  low  investment.  Other  chains 
run  larger  stores  and  carry  a  much  heavier  stock.  One  problem 
the  grocery  chain  has  had  to  confront  is  the  desire  on  the  part  of 
the  customer  for  perishable  goods.  Not  to  carry  vegetables, 
baked  goods,  etc.  means  a  positive  loss  of  trade  and  sales  in  the 
other  staple  dry  groceries.  A  meat  counter,  for  example,  attracts 
a  great  deal  of  trade.  The  Sam.  Seelig  Stores,  of  Los  Angeles, 
California,  rents  space  in  its  stores  to  butter,  fruit,  and  vegetable 
concerns.  The  main  idea  has  been  to  cut  out  all  perishable 
goods  and  cling  to  staple  groceries  but  the  value  of  the  presence 


THE  MEMBER  STORE  59 

of  these  other  merchandising  activities  in  the  same  store  is 
recognized,  and  the  result  has  been  a  succession  of  chain  conces- 
sions. Thus  a  meat  man  will  operate  meat  counters  in  several 
of  these  stores  in  one  town. 

A  middle  western  grocery  chain  has  sublet  a  corner  in  some  of 
its  larger  stores  to  meat  markets.  In  three  cases  it  built  two 
stores  side  by  side  so  that  a  meat  market  could  be  secured  next 
door.  A  grocery,  a  market,  and  a  drug  store  are  all  that  are 
needed  to  form  a  small  community.  In  one  section  this  chain 
operated  a  grocery  store  next  to  a  drug  store.  As  a  shrewd 
investment,  the  chain  built  a  meat  market  next  door  and  thereby 
secured  enough  additional  rent  to  carry  the  overhead  on  its 
own  store.  It  also  increased  trade,  since  people  no  longer  had 
to  go  down  town. 

There  are  other  exceptions  to  the  standard  size  for  a  store. 
Frequently  stores  in  the  heart  of  a  large  city  must  be  larger  than 
stores  in  the  suburbs  or  than  stores  in  smaller  cities  or  towns. 
These  are  but  the  exceptions  which  prove  the  rule.  Make 
your  stores  as  nearly  alike  in  size  as  possible. 

The  Store  Front. — Whenever  a  big  chain  secures  a  new  site, 
arrangements  are  quickly  made  for  erecting  or  altering  the  old 
store.  When  completed,  the  store  has  the  same  appearance, 
outside,  as  that  of  other  stores  of  the  chain. 

A  person  can  stand  on  the  main  street  of  almost  any  sizable 
city  in  the  United  States  and,  looking  around,  he  can  tell  immedi- 
ately what  some  of  the  stores  within  his  radius  of  vision  are. 
For  example,  on  the  opposite  corner,  he  sees  a  store  finished  in 
red,  with  a  shield  beside  the  lettering.  Clearly,  this  is  a  United 
Cigar  Stores  branch.  Farther  down  the  street  is  a  much  larger 
and  broader  red  sign,  with  prominent  gilt  letters.  Nearby,  is  a 
white  store  with  script  letters  on  the  windows,  gold  letters  on  a 
white  back  ground  over  the  store,  and  a  pancake  griddle  in  the 
window.  Everybody  would  recognize  these  stores.  But,  in 
addition,  there  are  any  quantity  of  local  chains  which  have  their 
own  color  scheme,  well  recognized  by  the  communities  in  which 
they  operate. 

A  uniform  store  front  is  an  asset  which  has  been  proved  very 
valuable.  Coming  into  a  new  community,  the  store  finds  patrons 
among  those  to  whom  its  name  is  familiar  or  who  have  actually 


60  CHAIN  STORES 

bought  at  its  stores  in  other  localities.  Like  the  railroad  station, 
the  member  chain  store  becomes  a  landmark. 

This  uniformity  of  appearance  is  nothing  more  than  the  idea 
of  the  signboard  standardized.  The  store  is  picked  out  by  the 
famiUar  color  which  can  be  seen  much  farther  than  the  name. 
Red  is  a  favorite  color  in  grocery  stores,  The  Piggly  Wiggly 
stores  are  painted  blue,  brown,  and  yellow,  with  Piggly  Wiggly 
in  white  letters  on  a  blue  background,  and  "All  Over  the 
World"  printed  beneath. 

Not  only  is  the  color  scheme  of  the  exterior  the  same  but  the 
fronts  and  entrances  wherever  possible  conform  to  the  standard. 
In  other  words,  every  store  in  a  chain  is  as  nearly  like  the  rest 
as  possible. 

Equipment. — The  analogy  can  be  carried  out  as  far  as  the 
interiors  of  the  stores  are  concerned  except  that  here  uniformity 
is  not  so  much  a  matter  of  advertising  importance  as  of  expense, 
replacement,  etc.  Make  your  own  equipment  if  possible.  The 
larger  chains  do,  and  find  that  it  pays.  They  also  keep  extra 
equipment  on  hand  in  case  of  opening  a  new  store,  a  fire  in  an 
old  one,  etc.  When  the  Federal  Bakery  at  San  Antonio,  Texas, 
was  ruined  by  the  flood  of  1920,  in  five  days  new  equipment  had 
arrived  from  Davenport,  Iowa,  to  take  its  place.  In  a  chain 
such  as  this,  or  the  United  Cigar  Stores,  or  some  grocery  chains, 
it  is  possible  to  standardize  equipment  almost  absolutely.  Once 
given  the  amount  of  space  in  the  store  and  the  amount  of  goods 
to  be  carried,  and  the  equipment  is  a  mathematical  problem  of 
shelves,  counters,  etc. 

But  when  it  is  a  question  of  stores,  the  size  of  which  may  vary 
a  great  deal,  such  as  a  five  and  ten  cent  store,  it  is  more  a  question 
of  standardizing  units.  For  example,  the  counters  may  be  uni- 
form, although  their  number  may  vary  in  the  stores,  according 
to  size. 

Figure  4  shows  the  interior  of  a  Federal  Bakery  in  Knoxville, 
Tenn.  Here  the  local  manager  has  used  the  standard  equipment 
as  a  basis,  and  for  $12.00  bought  some  laths  and  artificial 
flowers  and  added  the  extras  himself.  Note  the  display  of  goods 
and  the  compact  arrangement,  with  just  room  in  front  of  the 
counter  for  customers  and  just  room  in  back  of  the  counter  for  the 
sales  girls  to  move  around  without  interfering  with  each  other. 


THE  MEMBER  STORE 


61 


Arrangement  of  Store. — Where  shall  the  merchandise  be  placed? 
Experience  has  worked  out  rather  definite  positions  for  most 
merchandise.  As  a  general  rule,  the  merchandise  most  in 
demand  is  nearest  the  clerk.  In  the  grocery  store  these  articles 
are  directly  in  back  of  the  counter.  In  a  store  with  a  number  of 
departments  goods  most  in  demand  are  at  the  front  of  the  store. 


Fig.  4. — Interior  of  Federal  bakery. 

This  rule,  however,  is  capable  of  exceptions.  Mr.  Kells, 
manager  of  the  Metropolitan  Stores,  Inc.,  says,  "You  have  to 
know  just  what  goods  will  sell  in  certain  locations.  Jewelry, 
for  instance,  will  not  sell  in  the  basement,  but  must  be  well  up 
towards  the  front  door  with  plenty  of  light.  Men  will  not  hunt 
for  things;  therefore,  their  department  must  be  easily  accessible. 
Hardware  is  in  the  basement,  music  to  the  rear,  quick  sellers  to 
the  front." 

If  it  is  necessary  to  have  aisles,  these  should  be  wide  enough  to 


62  CHAIN  STORES 

avoid  overcrowding.  Narrow  aisles  tend  to  decrease  sales  of 
goods  on  display  at  the  point  of  congestion.  Arrangement  of 
goods  in  one  unit  of  a  chain  should  be  absolutely  the  same  as  in 
other  units.  In  the  Piggly  Wiggly  stores  there  is  a  place  for 
every  bar  of  laundry  soap  and  every  bottle  of  ketchup.  Every- 
thing is  arranged  for  convenience  with  the  heaviest  goods  nearest 
the  exit.  One  hundred  and  eighty-five  customers  an  hour  can  be 
handled  easily. 

A.  L.  Townsend  says,  "at  least  50  per  cent,  of  the  success  of 
an  institution,  large  or  small,  can  be  attributed  to  the  stage 
management  of  the  store  and  of  the  merchandise."  In  the 
chain,  it  is  the  reproduction  of  this  efficient  stage  management  in 
many  stores  that  does  so  much  towards  standardizing  sales  and 
profits. 

A  sales  manager  of  a  chain  store  system  is  quoted  as  saying: 

"Give  me  a  certain  line  of  drugs  and  toilet  preparations.  I  will  stock 
up  ten  average  drug  stores  of  the  old  regime  and  then  build  ten  competi- 
tive stores  of  the  new  type.  The  latter  will  inevitably  get  the  business, 
get  it  in  a  big  way,  despite  the  fact  that  the  other  shops  keep  the  same 
identical  line.  It  is  in  the  method  of  display,  in  spectacular  stage  dress 
of  the  store  and  the  hundred  and  one  details  of  service  supplied  to  these 
stores." 

The  Fifth  Avenue  Store  of  the  F.  W.  Woolworth  Co.  is  one  in 
which  "stage"  arrangement  has  been  carried  to  the  nth  degree. 
Everything  in  this  store  has  been  arranged  with  an  eye  to  the 
effect.  Ribbons,  jewelry,  and  candy  are  at  the  front.  The 
store  contains  34  departments,  two  more  than  usual,  the  two 
extra  ones  being  the  light  lunch  and  the  soda  fountain.  Several 
departments  are  duplicated  on  the  main  floor  and  in  the  basement 
on  the  theory  that  if  customers  pass  an  article  on  one  floor  they 
will  buy  it  on  the  second. 

J.  B.  Levey,  General  Sales  Manager  of  the  United  Shirt  Shops, 
says  in  an  article  in  The  Haberdasher: 

"It  is  an  established  fact  that  the  movement  of  customers  in  a  shop 
affects  the  sale  of  merchandise.  The  fixtures  are  placed  accordingly. 
In  entering  a  store,  we  usually  adhere  to  the  law  of  traffic  regulations, 
and  keep  moving  to  the  right.  Points  of  sales  vantage  are  usually  about 
10  to  12  feet  on  the  right  at  the  entrance  of  the  store  and  on  the  right 


THE  MEMBER  STORE  63 

center,  where  you  can  probably  sell  more  merchandise  than  in  any  other 
part.  Another  good  point  of  sales  vantage  is  the  extreme  rear  of  the 
store,  where  people,  having  reached  the  turning  point,  naturally  stop 
and  look  around.  Personally,  I  believe  the  best  selling  spot  in  the  store 
is  where  the  incoming  and  outgoing  traffics  criss-cross.  That  point  is  a 
few  feet  from  the  entrance,  on  the  right-hand  side.  Usually  there  is 
some  confusion  when  people  are  walking  in  and  out  all  the  time,  and  it 
causes  them  to  move  more  slowly  than  ordinarily,  thus  affording  another 
opportunity  to  glance  around." 

All  goods  should  be  priced  carefully  and  plainly.  If  the  goods 
are  on  shelves,  price  should  be  directly  underneath,  or,  if  in 
trays,  as  in  a  variety  store,  the  trays  should  be  marked.  All 
articles  of  a  kind  should  be  by  themselves,  not  hit-or-miss  any- 
where, as  was  once  a  common  occurrence  in  retail  stores.  If  a 
woman  wants  breakfast  food  in  a  grocery  store,  she  will  see  all 
the  different  brands  and  kinds  grouped  in  one  location,  and  that 
location  she  knows  from  habit. 

Display. — If  you  want  to  sell  your  goods,  put  them  where 
people  will  see  them,  and  make  them  look  attractive.  This,  like 
many  other  chain  store  principles,  is  nothing  more  than  ordi- 
nary retail  salesmanship.  All  goods  cannot  be  displayed  in  the 
window,  but  all,  or  nearly  all  of  them  can  be  displayed  on  the 
counters.  This,  of  course,  is  not  an  easy  matter.  A  poor 
display  repels  rather  than  attracts.  But  it  has  long  been  known 
that  there  is  no  easier  way  of  selling  goods  than  by  efficient 
methods  of  display. 

Take,  for  example,  the  five  and  ten  cent  store.  Once  in  a 
while,  you  may  find  trays  that  are  out  of  order  and  messy,  but 
you  may  be  sure  they  will  not  remain  that  way  long.  You  will 
note  that  counters  are  filled,  but  never  junky,  and  that  shop 
worn  goods  are  surprisingly  rare.  Nor  are  there  any  rusty  goods 
on  the  hardware  counter.  Probably  display  sells  more  articles 
in  the  five  and  ten  cent  stores  than  the  name  of  the  brand  or  the 
need  for  the  object.  People  buy  what  attracts  them  on  the 
counters.  The  price  is  negligible,  and,  as  explained  elsewhere, 
the  five  and  ten  cent  stores  pursue  a  rigorous  policy  of  letting  the 
goods  sell  themselves — by  display. 

The  Piggly  Wiggly  Co.  follows  the  same  policy,  and  here  the 
customers  themselves  pick  out  the  goods  they  desire.     Therefore, 


64  CHAIN  STORES 

of  necessity  only  those  goods  are  sold  which  are  in  demand  and 
consequently  on  display. 

Note  the  Federal  Bakery  illustration  on  page  61,  and  you  will 
see  that  baked  goods  are  plainly  and  attractively  displayed  in 
racks. 

Most  chain  executives  believe  that  if  the  prospective  customer 
can  be  got  to  enter  the  store,  the  display  will  do  the  rest.  But 
he  must  first  be  induced  to  come  in,  and  therefore  the  great 
importance  of  the  window  display. 

Window  Displays. — All  chain  authorities  agree  on  the  impor- 
tance of  the  window  display.  Some  chains  centralize  window 
dressing  at  central  headquarters  and  pay  large  sums  to  experts 
for  their  services.  Other  chains  delegate  the  duty  of  trimming 
windows  to  the  store  managers,  who  are  thus  allowed  some  scope 
for  originality.  The  former  method  insures  an  even  standard  of 
excellence  throughout  the  country  while  the  latter  allows  more 
individuality  and  initiative.  The  United  Cigar  Stores  have 
their  corps  of  window  dressers  at  headquarters. 

Location  and  the  window  display  take  the  place  of  advertising 
for  the  majority  of  chain  stores.  The  location  brings  them  the 
traffic,  and  the  window  trims  attract  the  trade  to  the  inside. 
Some  corporations  employ  several  chain  experts,  and  keep  them 
traveling  over  the  country,  visiting  the  several  branches  and 
teaching  the  managers  the  fundamentals  of  good  window  trims. 
Others  do  the  same  thing  by  mail.  The  principal  features  of  a 
good  window  trim  may  be  observed  by  referring  to  Fig.  5. 
Following  are  the  instructions  to  managers: 

"In  presenting  the  above  window  display  featuring  'Bringing 
Home  the  Bakin,'  your  attention  is  called  to  the  holiday  atmosphere  which 
surrounds  the  entire  display  (for  December).  The  holly  background 
sets  off  the  window  attractively  and  conveys  the  holiday  spirit.  The 
large  centerpiece  featuring  the  trademark  is  finished  in  seven  attractive 
colors.  The  display  card  has  been  handled  in  poster  effect  so  that  the 
striking  colors  wiU  stop  the  passing  crowds.  Note  how  the  two  smaller 
cards  tie  up  with  the  centerpiece,  and  carry  out  the  'Bringing  Home  the 
Bakin'  message.  The  old  window-trick  of  tying  up  the  products  with 
the  display  always  commands  attention  because  the  eye  naturally 
follows  lines.  In  this  particular  display,  note  how  easily  you  can  work 
out  this  idea  by  drawing  baby  ribbon  from  the  packages  right  to  your 
products." 


THE  MEMBER  STORE 


65 


Fig.  5. — Tying  up  window  display  with  the  product 


Fig.  6. — Japanese  window  display. 


66  CHAIN  STORES 

Now,  what  do  we  find  in  this  window  display? 

1.  A  seasonal  atmosphere,  in  this  case  Christmas,  and  shown  bv  the 
holly. 

2.  An  attention-attracting  feature — in  this  case  the  poster  effect  of  the 
display  fcard. 

3.  Balance,  secured  by  flanking  the  big  card  with  smaller  cards. 
4    Products  tied  up  with  the  display  by  ribbons. 

5.  The  trade  mark  featured,  which  is  good  advertising. 

Another  window  display  of  the  Federal  Bakeries  is  shown  in 
Fig.  6: 

1.  The  seasonal  atmosphere  here  is  changed  to  a  national  atmosphere, 
that  is,  Japanese. 

2.  The  center  display  on  the  white  background  forms  the  feature  which 
attracts  the  attention  of  passing  traffic. 

3.  The  fans  on  either  side  furnish  the  balance. 

4.  The  product,  in  this  case  Tokio  bread,  is  set  off  by  the  fans,  which 
form  a  neat  background  for  it. 

5.  The  trade  mark,  "Tokio,"  coincides  with  the  atmosphere,  and  is 
featured  on  the  poster,  on  the  fans,  and  on  the  lanterns. 

Another  point  is  that  nothing  but  Tokio  bread  is  shown  in 
this  display,  while  in  the  previous  illustration  a  variety  of 
products  was  shown. 

There  are  two  kinds  of  window  display,  the  general  display 
of  products  and  the  special  feature  display.  In  the  general 
display,  some  particular  article  may  have  greater  prominence, 
but  if  the  selling  effort  is  to  be  directed  to  one  article,  it  is  a 
better  plan  to  devote  all  the  window  space  to  this  product.  Of 
course,  this  does  not  always  hold  true,  depending  as  it  does  on 
the  nature  of  the  product. 

Take  a  shoe  store,  for  an  example.  It  would  do  little  good  to 
feature  some  particular  shoe,  since  individual  tastes  differ  so 
widely.  Therefore,  show  a  large  variety  at  a  scale  of  prices. 
But  in  the  case  of  a  drug  store,  where  even  the  smallest  carry 
more  than  3,500  different  items  and  the  large  stores  a  great  many 
more,  a  feature  window  display  should  be  used.  It  may  feature 
a  brand  of  products,  or  a  single  product.  In  city  stores,  toilet 
products  are  more  frequently  featured  than  medicines.  In 
small  towns  and  country  stores,  medicines  with  well-known  names 
are  featured.     One  large  advertising  agency  says  the  "question 


THE  MEMBER  STORE 


67 


of  whether  a  window  can  or  cannot  be  obtained  from  a  given 
druggist  is  largely  a  combination  of  the  volume  of  sale  the, 
medicine  commands  plus  the  profit  offered  the  druggist.  If  the 
sale  is  reasonably  large  and  the  profits  fair,  the  druggists  will  use 
windows  for  these  products  at  the  height  of  the  selling  season." 
In  other  words,  if  you  sell  one  product,  such  as  shoes  or  hats, 
etc.,  show  a  variety  of  styles  and  makes  in  your  window  trim. 
But  if  you  sell  a  large  variety  of  products,  such  as  groceries  or 


Fig.  7. — ^ Window  pasters. 

drugs,  arrange  a  succession  of  window  trims  featuring  a  particular 
brand  or  product. 

Pasters,  Packages  and  Counter  Displays. — Pasters  put  on 
the  windows  are  a  cheap  and  inexpensive  method  of  attracting 
attention,  particularly  when  stores  are  putting  on  special  sales 
nearly  every  day.  Grocery  stores  and  drug  stores  frequently 
use  these,  the  pasters,  themselves,  of  course,  being  furnished  by 
headquarters.  Window  pasters  attract  immediate  attention, 
whether  price  or  product  is  featured. 

Figure  7  shows  how  the  window  paster  was  used  in  the  same 
Tokio  campaign  previously  illustrated.  Friday  and  Saturday 
previous  to  the  campaign,  the  paster  was  used  as  a  "teaser" 


68  CHAIN  STORES 

and  was  replaced  by  the  regular  paster  the  following  week.  A 
paster  is  primarily  used  to  attract  attention.  People  look  at 
the  paster  before  the  window  trim,  as  a  general  rule.  In  a  city 
where  the  chain  maintains  several  stores,  the  repetition  of  these 
pasters  in  each  store  is  sure  to  arouse  interest. 

Packages  are  used  as  displays,  inside  and  out.  More  and  more 
manufacturers  are  coming  to  realize  the  value  of  display  as 
connected  with  their  own  products.  Consequently,  the  designing 
of  packages  has  become  almost  an  art.  In  the  drug  store,  for 
example,  many  articles  are  sold  solely  by  the  package.  It  is 
especially  true  also  in  the  grocery  business  that  packages  sell 
a  great  many  goods,  and  hence  the  value  of  displaying  well- 
known  packages  in  window  trims,  etc. 

In  the  Piggly  Wiggly  stores,  as  explained  previously,  the  pack- 
ages are  merely  arranged  on  the  shelves  and  the  customer  allowed 
to  take  her  pick.  Where  the  chain  manufactures  its  own  private 
brands  in  competition  with  advertised  brands,  and  where  it 
does  no  advertising  itself,  it  must  rely  almost  wholly  upon  its 
package  display  for  selling  the  goods.  If  the  goods  are  out  of 
sight,  no  one  would  ask  for  them,  and,  if  in  sight,  more  people 
ask  in  proportion  to  the  display  value  of  the  package. 

Some  chains  make  a  habit  of  using  counter  cards,  either 
furnished  by  them  or  by  the  manufacturer,  who  often  finds  it 
very  much  to  his  advantage  to  tie  up  closely  with  the  merchandis- 
ing efforts  of  the  various  chains  dealing  in  his  products. 

Show  cards  can  frequently  be  used  to  good  effect  either  in 
the  windows  or  on  the  counters.  In  the  ordinary  store  such  a 
card  would  read  something  like  this  "Felt  hats  reduced  to  $3.00" 
or  simply  "Lux  10  cents."  The  sales  department  of  the  chain 
store  organization  ordinarily  makes  the  message  on  the  show  card 
interesting  enough  to  attract  passers-by  and  customers.  If  the 
reduction  in  the  price  of  the  article  is  important  enough  to 
feature,  there  are  surely  some  sales  arguments  which  can  be 
featured  also. 

The  object  of  all  display  is  to  attract.  Therefore,  make 
your  displays  attractive.  The  more  people  you  get  in  the  store, 
the  more  sales  you  can  make.  Good  display  is  merely  another 
aspect  of  good  merchandising.  When  you  advertise  in  a  news- 
paper the  advertisement  may  or  may  not  be  read  by  the  prospec- 


THE  MEMBER  STORE  69 

tive  customer.  A  far  larger  proportion  look  at  the  display 
material  in  the  store  by  which  they  pass. 

Appearance. — The  chain  store  should  and  can  excel  in  general 
appearance.  Not  only  the  exterior,  the  interior,  the  equipment, 
and  the  stock  can  be  standardized,  but  the  lighting  and  the  gen- 
eral effect  of  neatness.  The  Piggly  Wiggly  stores  have  done 
away  with  window  trims.  The  windows  look  right  into  the  store, 
thus  making  the  goods  in  the  store  serve  as  window  trim,  and 
relying  on  their  general  appearance  of  attractiveness  as  well  as 
the  novelty  of  their  idea  to  attract  people  into  the  store.  The 
United  Cigar  Stores,  according  to  President  Wise,  notice  an 
almost  immediate  influx  of  customers  when  it  is  possible  to 
keep  open  the  doors,  and  this  is  noticeable  in  congested  districts 
especially.     He  also  stresses  the  value  of  night  lighting. 

As  a  matter  of  fact,  there  is  nothing  which  attracts  the  average 
customer  more  than  cleanliness  and  neatness.  If  a  chain  had  a 
monopoly  on  the  trade  in  a  district  through  its  price  appeal, 
cleanliness  might  matter  less,  but  where  there  is  such  keen 
competition  between  chains,  every  factor  which  lends  attractive- 
ness to  the  store  is  exceedingly  important.  In  a  grocery  store, 
for  example,  where  the  majority  of  the  customers  are  women, 
this  factor  looms  up.  Broken  boxes,  sawdust,  scraps  of  paper  on 
the  floor,  flies,  all  of  these  detract  from  the  store  appearance. 

Clean  windows  are  another  point  to  stress.  "Were  your 
windows  clean?"  is  one  of  the  first  questions  asked  by  the  Regal 
Shoe  Co.  when  one  of  its  stores  begins  to  fall  off  in  sales.  Clean 
paint  is  still  another  point.  Fresh  merchandise,  no  dust,  orderly 
arrangement,  each  one  of  these  factors  has  an  incalculable  but 
important  part  in  helping  to  make  the  retail  links  of  the  chain 
successful. 

There  is  a  case  quoted  in  New  York  where  in  one  block 
there  were  seven  places  selling  candy.  A  new  chain  candy  store 
moved  in.  One  of  its  competitors  was  selling  goods  of  its  own 
make,  trade-marked,  of  course,  but  employing  no  special  methods 
of  selling,  no  novel  containers,  etc.  There  was  another  slightly 
higher-grade  store  of  the  same  general  nature  with  a  shop  neat 
and  clean,  but  with  nothing  particularly  remarkable.  Candy  was 
sold  in  two  drug  stores  and  three  tobacco  stores.  When  the  new 
store  moved  in  it  stressed  appearance  at  once.     The  windows 


70  CHAIN  STORES 

were  made  bigger  and  brighter,  each  box  on  display  was  opened, 
prices  were  plainly  marked,  all  showcases  were  uniform  and  so 
placed  as  to  obtain  the  best  display  of  the  contents.  All  con- 
tainers were  designed  to  suit  the  brand  of  candy  with  vivid 
colors  and  attractive  designs.  Names  and  prices  shown  in  the 
window  were  repeated  inside. 

To  close  this  section,  we  quote  from  the  statement  of  the  policy 
of  the  Kroger  Grocery  and  Baking  Co.  in  regard  to  store 
appearance : 

1.  Fresh  paint — plain  name 

2.  Clean  windows. 

3.  Clean  interior. 

4.  Serviceable  counters  and  equipment. 

5.  Small,  well  assorted,  packaged  stock. 

6.  Signs  on  windows — fresh  daily. 

7.  Lots  of  plain  price  tickets. 

8.  No  cluttered-up  corners. 

9.  No  goods  on  floor — everything  in  boxes  or  on  shelves. 

10.  Neat,  business-like,  and  polite  clerk. 

11.  Special  leader  daily. 

Conclusions. — This  chapter  has  been  devoted  to  the  physical 
aspects  of  the  member  store.  The  location  of  the  store  and  its 
physical  appearance  are  inseparably  connected.  After  finding 
the  right  location,  it  is  necessary  to  let  passers-by  know  what  the 
store  has  to  offer.  Hence  the  enormous  publicity  value  of  the 
standardized  front  lies  in  the  fact  that  its  mere  appearance  on 
a  city  or  suburban  street  signifies  to  the  public  the  exact 
information  and  reputation  which  that  chain  has  made  for  itself. 
The  appearance  of  the  individual,  independent  store  is  of  value 
to  that  store  alone,  but  the  appearance  of  the  individual  chain 
store  is  of  value  to  every  other  store  in  that  chain,  at  present 
established  or  prospected  for  the  future. 

Throughout  this  chapter  the  attempt  has  been  made  to  lay 
emphasis  on  the  standardization  of  all  the  physical  aspects  of 
the  store,  of  its  exterior  and  interior,  of  the  size  and  the  arrange- 
ment of  the  stock  for  the  best  convenience  of  the  clerk  and  the 
public.  By  whatever  methods  it  is  carried  out,  the  following 
principle  is  universally  applicable:  "Make  the  member  stores 
as  attractive  as  possible,  inside  and  out,  and  results  will  be 
commensurate  with  the  effort." 


CHAPTER  V 
PURCHASING 

Outline 

Buying  channels. 

1.  Tendency  of  all  large  chains  to  buy  direct  from 

(o)   Manufacturers. 
(b)   Growers. 

2.  Some  indirect  buying  through 

(a)  Jobber. 

(b)  Wholesaler. 

(c)  Broker. 
Advantages  of  purchasing  direct 

1.  Saves  jobbers'  discount. 

2.  Secures  direct  delivery. 
Disadvantages. 

1.  Purchasing  direct  of  articles 

(a)  In  small  quantities. 
(6)  Of  fluctuating  price. 

(c)  Keeping  qualities  not  assured. 

(d)  Little-known  brands. 

2.  Necessary  to  assume  carrying  charges 

(a)  And  expense  of  distribution. 
Purchasing  terms. 

1.  Cash. 

(a)  Saves  further  discount. 
(6)   Saves  bookkeeping. 

2.  Future  dating. 
Purchasing  in  advance. 

1.  Depends  on 

(a)  Nature  of  the  product. 

1.  Much  less  danger  in  staples. 

(b)  Policy  of  the  company. 

2.  Taking  advantage  of  seasonal  cuts. 

(a)  Ordinarily  a  time  of  year  when  product  is  sure  to  be  cheaper 
than  at  others. 
The  purchasing  organization. 
1.  Personnel. 

(a)  Chief  buyer. 

1.  Assistant  buyers. 

71 


72  CHAIN  STORES 

2.  Duties. 

(a)  To  purchase  goods  for  entire  chain. 
(6)  To  purchase  saleable  goods. 

(c)   To  purchase  goods  on  the  lowest  terms  for  the  highest  quality. 

3.  Requisites  of  chain  store  buyer. 

,   (a)  An  expert  on  certain  line. 

1.  Knows  sources. 

2.  Qualities. 

3.  Price  trends. 

(b)  Wide  circle  of  acquaintances. 

(c)  Goes  and  looks  for  products  where  they  are  for  sale. 

4.  Desirability  of  maintaining  purchasing  agents  in  various  parts  of 

country  and  abroad. 
Buying  policies. 

1.  Chains  where  all  buying  is  done  at  headquarters. 

(a)  Choice  of  goods  and  products  wholly  in  hands  of  purchasing 

department. 

(b)  Local   managers  with   advisory  voice  in   choice   of   articles. 

2.  Chains  where  some  products  bought  locally  by  manager. 

3.  Chains  where  purchasing  is  done  by  member  stores. 
Buyer  and  manufacturer. 

1.  Possibility  of  cooperation. 


CHAPTER  V 
PURCHASING 

The  controversy  which  has  gone  on  for  so  long  over  the  abiHty 
and  the  practice  of  chain  stores  in  seUing  goods  at  a  lower  price 
than  their  independent  competitors  has  revolved  about  the 
question  of  purchasing.  The  larger  the  organization,  and  the 
larger  the  orders  which  it  can  place,  the  better  the  price  which  can 
be  obtained  from  the  manufacturer.  Jobbers  were  at  one  time 
very  prominent  in  organizing  and  helping  retail  chains,  but  no 
class  now  is  more  outspoken  as  a  whole  in  denunciation  of  the 
chains  than  jobbers.  Just  as  soon  as  a  chain  organization  feels 
itself  strong  enough,  it  stops  buying  from  jobbers,  wherever 
possible,  and  goes  straight  to  the  manufacturer  or  grower. 
Some  chains  are  able  to  purchase  the  whole  output  of  factories. 

The  ability  to  buy  the  right  goods  at  the  right  prices  is  one  of 
the  first  and  most  important  requisites  of  chain  store  success. 
This  ability,  in  the  great  majority  of  cases,  is  gained  by  a  central- 
ized purchasing  organization  and  a  trained  staff  of  buyers. 
In  fact,  as  mentioned  previously,  a  central  purchasing  organiza- 
tion is  one  of  the  fundamental  requisites  of  chain  store  success. 
The  larger  the  organization,  the  more  important  and  the  more 
complicated  do  the  duties  of  this  purchasing  department  become. 
In  this  chapter,  it  is  intended  to  discuss  the  general  purchasing 
policies  of  chain  organizations  with  specific  reference  to  some  of 
the  most  common  policies.  The  accounting  required  in  the 
purchasing  department  has  been  developed  completely  in  a 
following  chapter. 

Buying  Channels. — Generally  speaking,  the  chain  store  buyer 
can  purchase  either  directly — from  the  manufacturer,  grower, 
etc. — or  he  can  buy  indirectly — from  the  jobber,  wholesaler, 
broker,  etc.  In  general,  the  chain  store  prefers  to  buy  direct, 
because  in  this  way  the  jobbers'  margin,  which  in  many  cases  is 
as  low  as  two  per  cent.,  could  be  saved.  Even  two  per  cent,  is  a 
large  consideration  when  several  carloads  of  one  item  are  used 

73 


74  CHAIN  STORES 

in  the  course  of  a  year.  Naturally,  the  chain  stores  work  to  get 
on  the  direct  selling  list  of  all  the  manufacturers.  This  is  not  an 
easy  proposition.  Manufacturers,  under  the  veiled  or  open 
threat  of  jobbers  to  discontinue  their  lines,  hesitate.  They  are 
uncertain  as  to  the  continued  prosperity  of  the  chain  store  and  fear 
to  find  themselves  shut  out  from  the  channels  of  distribution  in 
case  of  failure.  This  is  especially  the  case  where  branded  goods 
are  concerned.  The  manufacturers  of  Kellogg's  Corn  Flakes 
had  a  famous  controversy  over  selling  direct  to   chain  stores. 

As  chain  stores  have  become  more  powerful  and  the  old-line 
jobbers  have  become  weaker,  conditions  have  changed  so  that 
now  practically  all  chain  stores  are  able  to  buy  everything 
direct.  The  inability  to  buy  direct  and  the  consequent  entry  of 
some  chain  stores  into  manufacturing  will  be  discussed  later. 

So  much  for  direct  purchasing.  The  attitude  of  the  manu- 
facturer has  changed.  He  prefers  to  create  consumer  demand  for 
his  product  by  judicious  advertising  rather  than  to  shut  himself 
out  of  a  sure  and  steady  retail  outlet. 

This,  of  course,  does  not  mean  that  the  jobber  has  been  elimi- 
nated. There  are  frequently  articles  needed  which  are  used  in 
such  small  quantities  that  it  is  found  better  policy  to  let  the 
jobber  carry  the  risk  and  pay  him  for  it.  This  is  also  true  of 
articles  the  price  of  which  is  likely  to  fluctuate  violently.  In 
some  cases,  the  chain  store  prefers  to  let  the  jobber  carry  the 
risk. 

The  ordinary  policy,  let  us  repeat,  is  to  buy  direct.  But  the 
following  is  the  experience  of  one  medium-sized  grocery  chain. 
These  people  usually  buy  canned  goods  direct  from  the  officials 
of  the  canning  companies.  But  often  they  deal  with  a  canned 
goods  broker,  who  acts  as  the  canners'  salesman.  One  broker,  for 
example,  sells  them  whatever  they  want  from  two  Michigan 
canneries,  and  also  represents  the  account  of  a  sal-soda  firm,  a 
large  pea-bean  grower,  a  peanut  growers'  organization,  etc. 
Naturally,  this  broker,  with  his  varied  lines  of  goods  to  sell, 
can  afford  to  get  around  to  his  trade  oftener  than  a  representative 
of  only  one  house.  In  addition,  this  man  sells  them  beet  sugar 
when  they  want  it.  They  could  buy  beet  sugar  direct  by  tele- 
graph, but  as  long  as  it  does  not  cost  any  more  to  buy  through  a 
broker,  it  is  a  big  advantage  to  have  a  broker  handle  the  business. 


PURCHASING  75 

He  takes  an  interest  in  them,  wants  to  see  them  make  money, 
and  frequently  gives  advice  as  to  market  changes  that  are  well 
worth  while. 

The  channels  of  purchase  are  more  or  less  determined  by  the 
policy  of  the  chain  management.  The  Kroger  Grocery  &  Baking 
Co.,  for  example,  one  of  the  largest  grocery  chains,  made  it 
a  cardinal  point  of  their  policy  to  buy  direct,  not  only  from 
manufacturers  but  from  growers.  Other  chains  will  buy  from 
wholesalers  and  jobbers  where  they  consider  the  price  is  low 
enough,  but  these  are  ordinarily  the  small  and  medium-sized 
chains. 

The  "Five  and  Tens." — Nowhere  is  purchasing  more  im- 
portant than  in  the  case  of  the  so-called  five  and  ten-cent  stores, 
where  the  ability  of  the  store  to  stock  articles  is  more  or  less 
dependent  on  the  price  at  which  these  articles  are  purchased. 
During  the  war,  all  the  large  chain  store  organizations  found  it 
necessary  to  abandon  the  10-cent  limit  with  the  exception  of  the 
Woolworth  chain.  This  was  due  entirely  to  inability  to  pur- 
chase a  large  enough  variety  of  goods  to  retail  within  the  10-cent 
limit.  And  the  success  of  a  five  and  ten-cent  store  chain  is  deter- 
mined by  the  volume  of  sales  it  can  attain. 

Woolworth  was  able  to  maintain  its  price  level  throughout 
the  war  by  the  enormous  volume  of  sales.  For  example,  in  one 
year  they  sold  nearly  90,000,000  pounds  of  candy,  enough  to  fill 
a  train  of  freight  cars  24  miles  long.  This  was  not  inferior 
candy.  But  the  enormous  volume  of  sales  enabled  the  manu- 
facturer to  make  a  profit  on  pure  candy  even  at  the  low  prices. 
Illustrating  this  point  further,  in  one  year  Woolworth  sold  more 
than  9,000,000  yards  of  curtain  material,  350,000  barrels  of 
glass  ware,  20,000,000  pieces  of  enamelware — enough  to  load 
a  freight  train  73^^  miles  long.  In  1918,  the  year  of  the  influenza 
epidemic,  they  sold  54,000,000  handkerchiefs  at  the  regular 
price  limit.  Despite  the  fact  that  the  cost  of  raw  material  kept 
shooting  up  like  a  rocket,  this  enormous  turnover  allowed  sales 
to  be  made  at  a  profit. 

As  the  Woolworth  Co.  says,  "The  Woolworth  stores  buy 
their  goods  where  goods  are  to  be  had,  and  are  ruled  by  the  same 
economic  laws  of  manufacture  and  selling  that  govern  every  other 
retailer.     The  more  of  a  thing  that  can  be  produced,  the  lower 


76  CHAIN  STORES 

the  price  can  be."  They  go  on  to  illustrate  their  point  and  the 
example  is  well  worth  quoting,  although  it  has  been  used  before. 

One  of  the  Woolworth  buyers  saw  a  ring  which  retailed  at 
fifty  cents.  He  thought  this  ring  would  go  well  in  the  Woolworth 
stores  and  accordingly  approached  the  manufacturer. 

"Absurd!"  was  the  manufacturer's  comment,  "I  can't  make 
that  ring  so  you  can  sell  it  at  ten  cents.  Anyway — I  am  selling 
plenty  as  it  is — more  than  450  dozen  this  year." 

The  buyer  merely  said  that  he  could  sell  a  "  great  quantity  "  and 
by  dint  of  persuasion  got  the  manufacturer  to  try  the  experiment. 
During  the  first  year  5,000  gross  were  handled,  or  60,000  dozen. 
This  is  exactly  the  point.  If  the  manufacturer  only  made  450 
dozen,  he  had  to  get  fifty  cents  at  retail,  but  if  he  made  60,000 
dozen  the  economies  he  could  effect  in  manufacturing,  standardi- 
zation of  processes,  etc.,  offset  the  lowered  retail  price. 

Most  retailers  base  their  selling  price  on  the  basis  of  the 
purchase  and  overhead  cost,  and  this  same  policy  is  followed  out 
by  the  five  and  ten-cent  store  chains. 

Purchasing  Terms. — J.  C.  Penney  says  the  first  principle  of 
merchandise  is  to  go  where  the  article  is  for  sale  at  first  hand  and 
then  to  offer  cash.  Here  we  strike  another  reason  for  chain 
store  purchasing  efficiency.  The  chain  store  pays  cash.  In  this 
way  it  obtains  a  further  reduction  in  price  by  discounting  bills 
promptly. 

In  1921,  the  Kroger  Grocery  &  Baking  Co.  advertised  in 
the  produce  papers  stating  that  it  was  in  the  market  for  carload 
lots  of  apples,  potatoes,  onions,  cabbage,  sweet  potatoes,  peaches, 
melons,  and  oranges,  bought  direct  or  consigned  by  grower  or 
shipper. 

The  American  Stores  Co.  has  also  been  steadily  advertising 
along  this  line.  The  Kroger  advertisement  reads  in  part  as 
follows:  "The  more  than  950  Kroger  stores  form  a  direct  out- 
let, Mr.  Grower  and  Mr.  Shipper,  over  our  counters  to  the 
consumer.  Our  tremendous  outlet  will  make  a  steady  market 
for  you." 

The  grower  has  the  option  of  accepting  cash  or  consigning  at 
the  highest  market  price. 

In  some  cases  a  chain  is  given  the  privilege  of  future  dating. 
That  is,  the  bill  is  dated  several  weeks  later  than  the  date  on 


PURCHASING  77 

which  the  dehveiy  of  the  goods  is  made.  Frequently  the  goods 
are  ah'cady  sold  before  the  bill  comes. 

Chain  stores  have  found  that  buying  for  cash  is  as  advan- 
tageous as  selling  for  cash.  It  ensures  prompt  service  and  de- 
livery from  pianufacturers  as  well  as  saving  in  discounts  and 
bookkeeping  for  the  chain. 

Buying  Ahead. — Whether  it  is  advisable  to  purchase  far  in 
advance  is  still  a  moot  point  in  chain  store  operation.  There  are 
arguments  on  both  sides.  Generally  speaking,  however,  there  is 
much  less  risk  in  contracting  ahead  for  staple  articles  than  for 
products  in  which  demand  fluctuates  or  totally  disappears. 

For  example,  it  has  never  been  the  policy  of  the  J.  C.  Penney 
Co.  to  buy  far  ahead.  Its  policy  is  to  buy  frequently  and  for 
cash.  It  holds  that  it  is  no  part  of  the  merchandising  function 
to  speculate  in  goods  values.  It  might  be  possible  to  make 
large  profits  and  it  might  not,  but,  in  any  event,  it  would  mean 
altering  the  present  cost-plus  price  policy.  As  the  system 
is  arranged  now,  the  stores  turn  their  stock  on  an  average  of  five 
times,  and  when  any  major  change  in  price  reaches  them,  the  stock 
is  already  sold.  Neither  branches  nor  stores  carry  stock  above 
current  needs.  This  naturally  means  that  there  are  no  special 
sales. 

A  certain  grocery  chain  which  never  makes  merchandise 
contracts  for  a  year  ahead,  and  seldom  buys  even  staple  goods 
in  carload  lots,  has  evolved  the  following  system.  Suppose  it 
buys  laundry  soap  in  100-case  purchases.  At  the  same  time,  it 
stipulates  that  delivery  shall  be  made  in  10-case  lots  and  by  the 
time  the  whole  has  been  received,  it  has  been  nearly  sold.  It 
always  tries,  however,  to  keep  from  30  to  60  days'  supply  on 
hand. 

If  a  chain  overloads,  it  is  usually  in  a  far  better  position,  be- 
cause of  its  numerous  retail  outlets,  to  unload  than  is  its  inde- 
pendent competitor.  Yet  the  evils  of  overloading  are  just  as 
apparent.  ''Men's  Wear"  publishes  an  article  showing  how  the 
chain  men's  furnishings  shops  over-expanded  and  over-loaded 
with  merchandise.  Contrary  to  many  of  the  chains,  the  product 
which  they  sell  is  not  a  necessity  in  the  strict  sense  of  the  word. 
A  buyers'  strike  will  hold  up  sales  indefinitely  and  this  is  exactly 
what  happened.     Where  the  Penney  company  came  through  the 


78  CHAIN  STORES 

period  of  storm  and  stress  with  comparatively  small  losses,  some 
of  these  chain  furnishings  shops  had  large  reserves  of  merchandise 
and  also  had  commitments  a  long  way  ahead.  Because  of  the 
nature  of  their  trade,  their  stock  proved  unwieldy.  Sixty  per 
cent,  of  their  business  was  in  shirts  and  the  public  was  abso- 
lutely indifferent  to  shirts. 

Buying  far  enough  ahead  to  ensure  supply  in  adequate  quantity 
is  necessary.  Buying  ahead  too  far  is  dangerous.  There  is  a 
proper  middle  distance  which  experience  will  determine  with  a 
fair  amount  of  exactitude. 

One  grocery  chain,  the  purchasing  policy  of  which  is  typical 
of  many  of  the  medium-sized  chains,  says,  "We  buy  canned  peas, 
corn,  tomatoes,  etc.,  in  large  enough  quantities  to  last  us  through 
most  of  the  year.  Dry  groceries,  like  beans,  flour,  corn  meal, 
sugar,  etc.,  are  bought  just  from  week  to  week.  We  probably 
make  a  couple  of  turnovers  a  month  on  some  of  these  items, 
whereas  with  certain  canned  goods  we  have  to  carry  them  in 
stock  a  whole  year  before  they  sell.  Canned  red  pie  cherries, 
rhubarb,  and  spinach,  for  instance,  are  packed  in  the  early 
summer  but  do  not  sell  in  any  big  quantity  until  the  following 
spring,  when  people  get  a  touch  of  spring  fever  and  want  these 
three  spring-like  items." 

This  brings  up  another  point — seasonal  purchases.  It  is 
true  that,  in  certain  lines  of  merchandise,  it  is  possible  to  predict 
in  normal  times  a  particular  month  or  months  when  the  price 
will  be  especially  low.  In  canned  goods,  for  example^  the  price 
will  be  low  right  after  the  canning  season,  and  if  the  chain  wishes 
to  purchase  the  output  and  store  it  away,  it  is  possible  to  reckon 
out  approximately  whether  this  policy  will  prove  profitable  or 
not.  This  problem,  however,  is  not  confined  exclusively  to  the 
chain  store  but  is  merely  one  of  the  general  rules  of  purchasing — 
to  buy  when  the  article  is  cheapest. 

The  Buyer. — The  buyer  in  any  organization  is  an  important 
individual,  but  in  the  chain  his  position  is  particularly  prominent. 
But  whereas  in  a  small  organization  a  buyer  often  has  to  turn  his 
attention  to  many  dissimilar  articles,  in  the  larger  chains  the 
buyer  is  an  expert  in  a  particular  line.  He  knows  the  manu- 
facturers of  that  article,  he  knows  the  sources  of  supply,  the 
channels  of  trade,  and  the  market  trends.     That  is,  by  a  careful 


PURCHASING  79 

study  of  the  market,  connected  with  a  study  of  business  condi- 
tions in  general,  he  knows  fairly  well  what  the  market  will  do. 
He  usually  belongs  to  local  and  national  organizations  of  purchas- 
ing agents,  and  subscribes  for  publications  devoted  to  purchasing 
as  well  as  trade  papers  of  the  industries  from  which  he  gets  his 
supplies.  He  has  a  wide  range  of  acquaintances  and  is  an 
exceedingly  wide-awake  business  man.  Good  buyers  are  always 
in  demand. 

All  purchases  in  the  chain  are  made  by  the  buyer  or  purchasing 
agent,  as  a  general  rule.  Local  managers,  however,  are  often 
given  an  opportunity  to  pick  up  perishable  goods  from  local 
sources  and  sell  them.     Grocery  chains  often  do  this. 

To  return  to  the  buyer,  he  has,  depending  on  the  size  of  the 
chain,  several  assistant  buyers  under  him  who  are  all  experts  in 
different  lines.  The  five  and  ten-cent  chains,  for  example,  have 
large  staffs  of  buyers,  each  experienced  in  a  particular  line. 

The  main  buying  office  of  the  J.  C.  Penney  Co.  is  in  New  York, 
with  branches  at  St.  Louis  and  St.  Paul.  The  whole  idea  is 
to  provide  a  pipa  line  from  the  sources  of  supply  direct  to  the 
distributing  stations.  As  New  York  is  the  center  of  so  much  of 
the  buying  activity,  many  chains,  like  the  Penney  organization, 
maintain  offices  there  for  purchasing  purposes. 

It  may  be  necessary  to  maintain  buyers  at  distant  points. 
Clothing  chains,  for  example,  might  have  buyers  in  New  York  and 
Chicago,  the  centers  of  the  garment  trade.  They  might  even 
have  buyers  in  London  or  Paris.  Shoe  chains  that  do  not  manu- 
facture their  own  product  would  probably  have  a  buyer  stationed 
in  some  shoe-manufacturing  center. 

At  all  events,  the  chain  store  buyer  goes  out  to  buy  and  does 
not  remain  at  home  waiting  for  salesmen  to  visit  him. 

Buying  Policies. — How  far  may  the  buyer  act  on  his  own  judg- 
ment and  to  what  extent  must  he  follow  the  policy  of  the  store? 
There  are  many  variations.  In  general,  however,  some  such 
policy  as  the  following  is  used: 

1 .  For  staple  sellers  a  certain  rate  of  turnover  has  been  estab- 
lished. By  keeping  records  it  is  known  just  about  what  quantity 
of  the  article  is  needed  of  a  given  quality  and  a  given  style. 
Therefore,  the  buyer  is  authorized  to  keep  a  comfortable  margin 
ahead  of  requirements. 


80  CHAIN  STORES 

2.  In  the  case  of  novelties  and  new  products,  the  store  manager 
is  often  given  a  certain  amount  and  told  to  feature  it.  As 
results  come  in,  the  buyer  is  informed  and  from  these  results  he 
makes  corresponding  purchases. 

Some  buyers  may  have  more  authority,  some  less.  If  a  buyer 
could  prove  to  the  management  of  a  chain  that  he  had  an  oppor- 
tunity to  buy  up  the  product  of  an  entire  plant  for  a  year  and  also 
could  show  how  that  product  could  be  moved,  in  all  probability 
he  would  be  authorized  to  go  ahead  and  make  the  purchase. 

Some  of  the  larger  chains  permit  local  purchasing  in  some  cases, 
as  has  been  mentioned  before.  In  the  big  cities  where  there  is 
more  than  one  store,  an  assistant  buyer  may  be  sent  out  to  pick 
up  articles  out  of  stock  to  tide  the  stores  over  until  shipments 
arrive  from  the  company.  One  company  is  known  to  allow  its 
store  managers  to  buy  from  traveling  men.  The  store  manager 
may  be  allowed  to  purchase  any  extraordinary  bargains,  provided 
he  is  sure  he  can  dispose  of  the  merchandise  thus  procured. 

Branded  Goods  vs.  Private  Brands. — The  question  of  private 
brands  is  discussed  elsewhere,  but  a  few  words  are  necessary 
here  in  relation  to  the  buying  policy.  The  purchases  of  a  chain 
are  made  strictly  according  to  the  criterion  of  what  goods  it  is 
going  to  be  able  to  sell,  and  at  what  prices.  That  is,  the  needs 
and  desires  of  the  community  to  which  it  caters  are  paramount. 
If  there  is  a  call  for  advertised  goods,  the  chains  endeavor  to 
satisfy  this  call.  At  one  time  there  was  much  substituting  in 
chains,  but  this  policy,  when  found  unprofitable,  was  abandoned, 
and  instead  the  policy  was  adopted  of  selling  the  customer  what 
he  wants. 

Some  communities  demand  advertised  brands;  others  prefer 
the  larger  quantities  possible  to  obtain  from  the  chain's  private 
brands. 

The  buyer  of  a  five  and  ten-cent  chain  is  said  to  divide  his  pur- 
chases more  or  less  as  follows : 

1.  Advertised  lines.  Such  articles  catch  the  eye  of  the  consumer 
immediately  on  entering  the  store  and  make  prestige  for  the 
five  and  ten-cent  company.  More  and  more  advertised  articles 
are  finding  their  way  to  their  counters,  owing  to  the  profitable 
results  obtained  by  manufacturers  from  this  easy  method  of 
sampling  (discussed  in  the  following  section). 


PURCHASING  81 

2.  Articles  which  will  give  impression  of  a  great  deal  for  the 
money.  These  have  been  purchased  by  the  chain  at  bargain 
prices  with  this  end  in  view. 

3.  Special  feature  articles  made  to  draw  trade. 

Buyers  should  constantly  look  for  good  prices  but  it  is  a  mistake 
to  imagine  that  quaHty  should  be  sacrificed.  A  chain  store 
ordinarily  has  to  maintain  a  certain  standard.  In  fact,  a  great 
part  of  its  trade  is  obtained  by  a  recognition  of  that  standard  of 
quality.  The  buyers  must  keep  this  point  in  mind  all  the  time, 
whether  they  are  purchasing  branded  or  unbranded  goods. 

Some  chains,  such  as  the  Piggly  Wiggly,  confine  their  purchases 
entirely  to  branded  goods.  They  prefer  to  let  the  manufacturers 
assume  the  selling  effort.  Other  firms,  such  as  Penney,  buy  only 
staples — no  fancy  or  unusual  goods.  Their  appeal  is  directed 
to  the  middle' class,  and  they  do  not  care  to  deviate  from  the 
policy  of  carrying  only  goods  in  ordinary  demand.  In  shoes, 
for  example,  they  do  not  carry  "Double  A." 

In  a  great  many  chains,  we  have  the  policy  of  selling  branded 
goods  and  private  brands  as  well.  In  fact,  this  seems  to  be  the 
modern  trend — to  allow  the  customer  to  decide  what  the  store 
shall  sell.  This  policy,  of  course,  is  directly  reflected  in  the 
purchasing  department. 

The  Buyer  and  the  Manufacturer. — Some  buyers  have  found 
it  to  their  advantage  to  get  in  extremely  close  touch  with  the 
manufacturers.  They  have  been  able  to  contribute  towards  the 
more  efficient  handling  of  the  manufacturers'  own  problems. 
Manufacturers,  as  the  F.  W.  Woolworth  Co.  says,  are  not 
necessarily  merchandisers.  Many  times  they  cannot  see  the 
possibilities  of  an  item  until  they  are  shown.  Our  buyers  have 
gone  far  enough  many  times  actually  to  show  manufacturers 
how  they  could  revise  their  methods  so  as  to  increase  their  effi- 
ciency and  make  a  larger  output  possible.  The  buyers  know 
that  unless  they  can  make  it  possible  for  the  manufacturer  to 
get  a  fair  profit,  their  source  of  supply  is  bound  to  be  curtailed. 
Therefore,  they  work  in  the  closest  cooperation  with  the  maker. 

As  an  example  of  this,  they  quote  celluloid  dolls  which  the  war 
had  made  impossible  to  get  in  America,  simply  because  no  one 
over  here  knew  how  to  make  them.  But  the  buyer  who  had 
previously  purchased  toys  in  Europe  before  the  war  had  made 


82  CHAIN  STORES 

such  a  close  study  of  the  subject  that  he  was  able  to  show  Ameri- 
can manufacturers  how  to  produce  celluloid  dolls  which  would 
retail  at  ten  cents. 

Christmas  tree  ornaments  were  scarcely  to  be  found  anywhere 
the  first  years  of  the  war.  Again,  the  Woolworth  buyer  induced 
a  manufacturer  to  try  some  experiments  and  as  a  result  the  Wool- 
worth  organization  sold  millions  of  Christmas  tree  ornaments. 

Woolworth  has  been  given  as  an  example  of  the  good  results 
which  can  be  obtained  by  close  contact  of  the  buyer  with  the 
manufacturer.  But,  as  a  matter  of  fact,  the  buyer  of  any  chain 
has  the  same  advantages  open  to  him.  He,  too,  can  become 
acquainted  with  the  manufacturers  and,  knowing  as  he  does  or 
should  the  demands  of  the  public  to  which  his  organization 
caters,  he  can  often  make  valuable  suggestions  to  the  manufac- 
turer. The  buyer  should  remember  that  anything  which  helps 
the  manufacturer  to  make  more  money  will  in  the  end  result  in 
a  more  satisfactory  price  to  him. 

The  Manufacturer  and  the  Buyer. — We  have  shown  how  the 
buyer  can  work  with  the  manufacturer  with  benefit  to  both. 
Now,  in  some  cases  the  manufacturer  can  use  the  buyer  to  his 
advantage,  that  is,  for  sampling  purposes.  This  is  comparatively 
a  new  development  and  is  confined  to  the  five  and  ten  cent 
stores. 

The  manufacturer's  object,  as  was  mentioned  previously,  is 
to  obtain  as  much  publicity  as  possible  for  his  product.  The 
more  he  gets  it  before  the  public,  the  more  publicity  he  will  get 
and  consequently  his  sales  volume  will  mount  up  proportionately, 
always  assuming  his  product  is  a  good  one. 

At  one  time,  all  manufacturers  frowned  upon  the  five  and  ten 
cent  store.  The  latter 's  counters  were  bare  of  advertised  goods. 
There  has  been,  however,  a  marked  change  in  the  attitude  of 
the  manufacturers,  and  many  of  them  are  now  as  anxious  as 
they  were  previously  reluctant  to  do  business  with  the  chain 
stores. 

The  reason  is  obvious.  The  large  variety  chains  sell  in  all 
parts  of  the  country.  They  purchase  in  large  quantities  and 
as  long  as  the  article  sells  their  patronage  is  steady.  Of  course, 
all  articles  cannot  be  used  as  samples,  but  it  is  surprising  how 
many  articles  can  be  disposed  of  in  this  way,  even  at  a  profit. 


PURCHASING  83 

Before  the  war,  Colgate  &  Co.  sent  a  trial  tube  of  their  tooth 
paste  for  six  cents  in  stamps  and  kept  a  large  force  busy.  They 
did,  however,  put  out  a  ten  cent  size  when  the  government 
placed  a  stop  on  sampling  during  the  war.  A  great  many 
manufacturers  with  nationally  advertised  goods  have  followed 
their  example. 

But  the  point  is  this:  the  buyer  for  the  chain  will  not  purchase 
articles  of  this  kind  unless  there  is  a  demand  for  them.  The 
manufacturer  cannot  have  his  sampling  done  free.  He  must 
create  a  demand.  The  chain  will  not  sell  the  article — the  article 
must  sell  itself. 

Conclusions. — In  the  chapter  on  Purchasing  Records,  the 
reader  will  find  a  full  discussion  of  procedure  and  practice  in  a 
typical  purchasing  problem.  In  the  following  chapter  on  the 
warehouse  he  will  find  a  discussion  of  a  subject  which  is  so  closely 
connected  with  the  purchasing  problem  in  most  chains  as  to  be 
almost  inseparable. 

This  chapter  has  described  the  general  aspects  of  the  purchasing 
problem  in  their  broader  phases.  The  constant  trend  of  the 
chains  towards  a  more  direct  purchasing  contact  with  the  manu- 
facturer or  other  source  of  supply  has  been  emphasized.  This 
purchasing  economy  is  effectually  summed  up  in  the  phrase 
"Centralized  purchasing  department  and  quantity  buying." 
Cooperative  buying  associations  have  attempted  to  do  the  same 
thing  and  their  failure  to  secure  the  desired  results  leads  to  the 
conclusion  that  not  so  much  of  the  chain's  efficiency  as  had  been 
supposed  was  due  to  the  purchasing.  Purchasing  is  one  of  the 
essentials,  but  it  is  not  the  only  one. 


CHAPTER  VI 

THE  WAREHOUSE 

Outline 
Its  location. 

1.  To  form  the  hub  of  chain  wheel  of  retail  stores. 

2.  Location  with  reference  to  probable  future  development. 

3.  On  transportation  routes. 

(a)  Rail. 

(b)  Water. 

(c)  Truck. 

4.  Ease  of  access  for  deliveries. 
Size. 

1.  Large  enough  to  carry  stock  comfortably. 

2.  Designed  so  that  additions  can  be  made  easily. 
Construction. 

1.  Number  of  floors. 

2.  System  of  conveying  articles. 

3.  Miscellaneous  considerations. 
The  stock. 

1.  Methods  of  arranging. 

(a)  According  to  frequency  of  demand. 

(b)  Weight. 

(c)  Group  class. 

(d)  Alphabetical. 

2.  Need  for  room. 

(a)  In  order  to  take  frequent  inventories. 

(b)  To  facilitate  moving  of  stock. 

3.  Desirability  of  putting  old  goods  in  front. 

(a)  To  avoid  old  goods. 

4.  Desirability  of  placing  heavy,  bulky  articles  near  exit. 

5.  Importance  of  having  regular  place  for  all  stock. 

(a)  Facilitates  handling  by  porters. 
The  warehouse  superintendent. 

1.  Position. 

(a)  Subordinate  to  purchasing  agent. 

2.  Duties. 

(a)  Keep  stock  up-to-date. 
(6)  Keep  adequate  reserve. 

1.  Notify  purchasing  agent  when  stocks  are  low. 
84 


THE  WAREHOUSE  85 

(c)  Charge  of  personnel. 

1.  Must  see  that  orders  are  filled  promptly. 

(d)  In  charge  of  goods  in  storage. 

1.  Responsible  for  theft. 

2.  Must  see  goods  are  checked  properly. 
Deliveries. 

1.  Medium  of  delivery. 

(a)  Truck. 

1.  Expense. 

2.  Speed  of  delivery. 
(6)   Horse. 

(c)    Care  of  delivery  trucks  or  wagons. 

2.  Frequency  of  deliveries. 

(a)  Dependent  on 

1.  Distance  from  member  stores. 

2.  Frequency  of  turnover  in  member  stores. 

3.  Storage  capacity  of  member  stores. 
(6)   Desirability  of  having  regular  deliveries. 

3.  Routing  of  deliveries. 

(o)  Certain  number  of  stores  to  each  driver. 
(6)   Should  know  time  necessary  to  deliver  for  each  truck. 
Filling  requisitions. 

1.  Requisites  of  warehouse  clerk, 
(a)  Knowledge  of  stock. 
(6)   Knowledge  of  brands  or  sizes. 

(c)  Knowledge  of  code  numbers  if  employed. 

(d)  Accuracy. 

(e)  Speed. 


CHAPTER  VI 
THE  WAREHOUSE 

In  the  previous  chapter  we  discussed  the  purchasing  function, 
and  in  this  chapter  we  treat  the  warehousing  function.  All 
goods  purchased  must  ordinarily  be  stored  at  some  central  point 
preparatory  to  being  distributed  to  the  various  retail  outlets. 
For  the  ordinary  retailer,  this  function  is  fulfilled  by  the  jobber, 
but  the  chain,  for  various  reasons,  such  as  price  economy,  ade- 
quate deliveries,  etc.,  takes  this  function  upon  itself.  Thus,  the 
warehouse  becomes  the  focal  center  of  the  distributing  system. 
Large  national  chains  have  several  warehouses  located  at  central 
points. 

Warehouses  are  in  charge  of  an  experienced  warehouseman  who 
sees  to  it  that  supplies  are  received,  that  lots  are  broken  when 
necessary,  graded,  assembled,  and  shipped  at  appointed  times  or 
as  soon  after  orders  are  received  as  possible. 

Warehouses  operate  on  a  maximum  and  minimum  basis,  inven- 
tory being  kept  by  a  modification  or  amplification  of  any  one  of 
the  methods  indicated  elsewhere  in  the  chapter.  On  the  accuracy 
of  these  inventories  and  the  manner  in  which  they  are  kept  up, 
not  only  does  the  efficiency  of  the  purchasing  depend,  but  also  the 
ability  to  fill  orders  promptly  as  they  come  in  from  branch  stores. 

The  warehouse  function  may  be  divided  as  follows : 

1.  It  maintains  an  adequate  and  fresh  stock  of  goods  on  hand  at  all 
times. 

2.  It  is  so  arranged  that  orders  from  stores  can  be  filled  and  shipped  out 
at  maximum  speed  and  with  maximum  accuracy. 

3.  It  must  do  this  with  the  minimum  expense  for  overhead. 

The  Warehouse  Location. — There  is  a  right  place  and  a  wrong 
place,  just  as  there  is  in  the  case  of  the  retail  store,  to  locate  the 
warehouse.  But  the  problem  varies  a  great  deal  more  in  relation 
to  the  individual  peculiarities  of  the  chain.  There  are  some 
general  rules  in  this  as  in  the  other  phases  of  chain  store  operation. 

1.  The  warehouse  should  form  the  hub  of  the  chain  circle. 

86 


THE  WAREHOUSE  87 

That  is,  a  chain  is  not  really  a  chain  in  the  sense  that  each  branch 
store  forms  a  link.  It  is  more  like  a  wheel  with  the  warehouse  at 
the  center.  This  holds  true  whether  the  chain  is  national  or 
local.  A  chain  organized  in  the  East  may  have  to  have  ware- 
houses in  San  Francisco,  Denver,  Omaha,  Minneapolis,  Kansas 
City,  New  Orleans,  Chicago,  Atlanta,  Detroit,  Cincinnati, 
Cleveland,  Buffalo,  and  Baltimore,  as  well  as  in  New  York  and 
Philadelphia.  In  other  words,  there  is  a  series  of  wheels  scat- 
tered over  the  country.  If  the  chain  is  local,  the  warehouse 
should  be  located  as  nearly  as  possible  in  the  center  of  the 
member  stores.  This  saves  time  and  expense  in  deliveries  to 
member  stores. 

2.  A  chain  warehouse  should  be  located  with  an  eye  to  the 
future.  Where  are  the  new  stores  going  to  be?  Which  way  is 
population  growing?  These  are  only  two  of  many  of  the 
questions  which,  in  consideration,  form  a  complex  problem  in 
commercial  research. 

3.  The  warehouse  must  be  located,  if  possible,  on  a  railroad 
siding,  where  goods  can  be  transferred  directly  from  cars  to  the 
warehouse. 

4.  The  warehouse  can  be  located  to  suit  its  own  convenience 
and  with  a  view  to  reducing  overhead.  It  can  be  located,  in 
other  words,  where  rent  is  cheap.  It  must,  however,  be  easy  of 
access  by  road,  so  that  trucks  will  find  no  interference  going  to 
and  fro. 

The  Size  of  the  Warehouse. — The  best  plan  in  building  a  ware- 
house is  to  have  a  building  large  enough  for  all  immediate  needs 
and  for  requirements  in  the  immediate  future,  and  to  have  it 
designed  so  that  additions  can  be  put  on  inexpensively  and  rap- 
idly. This  will  avoid  waste  and,  at  the  same  time,  provide  for 
future  developments.  If  possible,  the  experience  of  the  following 
chain  should  be  avoided. 

The  warehouse  of  the  company  in  question,  when  built,  ten 
years  ago,  was  much  too  large,  but  at  present  it  is  too  small. 
Consequently,  various  lines  of  canned  goods  have  to  be  stored 
in  the  basements  of  some  of  the  larger  stores.  This,  as  is  readily 
seen,  causes  extra  trouble.  It  is  necessary  to  keep  a  storage 
record  of  these  lots,  and  whenever  anything  is  removed  from  any 
store  basement,  a  requisition  has  to  be  filled  out  in  the  office, 


88  CHAIN  STORES 

given  to  the  truck  driver  who  is  to  get  the  goods,  and  have  the 
store  manager  check  the  goods  and  O.K.  the  requisition.  Some 
goods,  such  as  canned  peas,  may  be  left  untouched  until  spring, 
when  the  carload  that  was  originally  put  into  the  main  warehouse 
has  been  sold  off.  Then  they  begin  to  draw  in  from  the  base- 
ments, a  hundred  cases  at  a  time. 

It  is  a  question  whether  the  extra  trouble  involved  in  finding 
extra  storage  space  does  not  offset,  in  great  measure  the  economies 
effected  by  buying  goods  ahead  in  large  quantities. 

Of  course,  the  size  of  the  warehouse  depends  a  great  deal  on  the 
goods  sold  by  the  chain  and  the  number  of  stores  supplied.  A 
grocery  warehouse  would  have  to  be  much  larger  than  a  shoe 
warehouse  or  a  haberdashery  warehouse,  and  much  more  special- 
ized in  the  first  and  the  last  case. 

Arrangement  of  Stock  in  Warehouse. — There  are  several 
methods  of  arranging  stock,  according  to  frequency  of  demand, 
according  to  weight,  according  to  group  classification,  etc. 
This  is  a  matter  for  the  warehouse  superintendent  to  determine 
in  accordance  with  the  nature  of  the  product.  There  are  a  few 
hints  which  it  would  be  advisable  to  heed: 

1.  Do  not  overcrowd  the  goods.  They  must  be  easy  of  access  both  for 
counting — necessary  when  goods  are  repriced  and  at  other  stated  intervals — 
and  for  adding  to  or  removal. 

2.  Old  goods  should  be  in  the  front  so  that  these  may  be  used  up  first, 
thus  ensuring  a  fresh  supply  of  goods  at  all  times. 

3.  Heavy  goods  should  be  as  near  as  possible  to  the  place  of  loading  to 
save  effort  in  moving. 

4.  Each  article  stocked  should  have  a  regular  place,  so  that  all  confusion 
may  be  avoided. 

5.  Goods  must  be  checked  on  arriving  and  on  leaving.  For  this  reason, 
the  checking  desk  should  be  near  the  loading  platform.  In  some  cases, 
where  warehouses  contain  several  floors,  checking  is  done  separately  for 
each  floor. 

Orderly  arrangement  of  stock  and  efficient  handling  of  it 
will  reduce  overhead  and  carrying  charges.  It  will  also  guard 
against  confusion  in  filling  orders  and  in  speeding  up  operations 
generally. 

The  Warehouse  Manager. — The  man  in  charge  of  the  ware- 
house may  be  a  rather  important  individual,  or  he  may  be  a 
mere    subordinate    of   the    purchasing   agent.     In    the    smaller 


THE  WAREHOUSE  89 

chains,  the  purchasing  agent  has  his  office  in  the  warehouse, 
and  the  control  of  warehousing  problems  is  jilaced  directly  in 
his  hands. 

But  where  the  warehouse  is  placed  at  a  distance,  the  warehouse 
manager  has  much  responsibility.  He  must  see  that  his  stocks 
are  kept  up  to  date,  and  in  sufficient  reserve  to  fill  all  ordinary 
requirements.  He  must  see  that  the  central  purchasing  office  is 
informed  daily  of  the  exact  book  inventory  of  the  business,  and 
he  must  see  that  orders  for  branch  stores  are  filled  promptly. 
It  may  be  that  some  of  the  buying  is  done  from  the  branch  ware- 
house, such  objects,  for  example,  as  are  staple  and  the  only 
saving  in  which  comes  from  quantity  purchases. 

The  warehouse  manager  is  responsible  for  checking  goods  as 
they  come  in  and  as  they  go  out.  His  system  should  be  made 
such  that  it  would  be  practically  impossible  for  employees  to 
destroy  or  break  open  goods  without  the  knowledge  of  the  audit- 
ing department.  He  is  also,  of  course,  in  charge  of  the  warehouse 
personnel,  porters,  checking  clerks,  billing  clerks,  and  probably 
the  delivery  personnel,  truck  drivers,  helpers,  etc. 

Deliveries  to  Member  Stores. — The  problem  of  delivery  comes 
down  to  three  factors:  the  medium  of  delivery,  the  frequency  of 
deliveries  necessary  to  stores,  and  the  efficient  routing  of  delivery 
service. 

The  first  question,  whether  delivery  shall  be  made  by  truck 
or  horse,  is  a  matter  of  cost  to  be  decided  by  the  chain  manage- 
ment. Some  firms  maintain  horse  delivery  is  cheaper  for  short 
hauls  and  motor  trucks  for  longer  distances.  The  majority, 
however,  use  motor  trucks. 

The  second  factor,  that  of  the  frequency  of  deliveries  to  stores, 
depends  on  the  turnover  in  the  store,  plus  the  storage  capacity 
in  that  store.  This  will  naturally  vary  among  the  several  chain 
branches.  Some  stores  will  require  replenishing  of  stocks 
daily,  some  semi-weekly,  and  some  weekly.  This  frequency  can 
be  determined  very  quickly  after  short  experience. 

The  routing  is  merely  a  matter  of  traffic,  but  it  is  claimed 
scientific  management  of  truck  deliveries  will  save  considerable 
time  and  money.  The  traffic  manager  can  ordinarily  tell  about 
how  long  it  will  take  to  deliver  at  a  certain  distance  from  the 
warehouse,  and  can  arrange  his  routes  accordingly. 


90  CHAIN  STORES 

Filling  Requisitions. — When  an  order  comes  in  to  the  ware- 
house, it  must  be  filled  as  quickly  as  possible  and  with  absolute 
accuracy.  The  man  performing  this  task  must  have  complete 
knowledge  of  the  stock,  the  sizes,  the  code  numbers,  the  prices, 
etc.  It  is  easy  to  imagine  how  accurate  his  knowledge  must  be 
in  warehouses  stocking  a  great  variety  of  articles.  In  some  cases 
it  may  be  desirable  to  have  the  order  pass  through  several 
departments,  in  each  of  which  a  special  clerk  picks  out  the  goods. 

In  one  haberdashery  chain,  a  special  conveyor  on  wheels  is 
used  which  has  been  designed  to  carry  the  merchandise  to  and 
from  all  parts  of  the  ware  room.  It  eliminates  repeated  handling 
of  the  goods,  and  allows  the  order  from  one  store  to  be  filled  at 
one  time  and  prevents  any  confusion  of  goods  ordered  for  another 
store.  These  conveyors  are  wheeled  to  the  charge  desk,  where 
goods  are  packed  for  shipment  to  the  stores.  In  this  chain,  after 
a  shipment  is  charged  and  rechecked,  it  is  passed  along  to  a  marker 
who  weighs,  addresses,  and  marks  out  whatever  receipts  are 
necessary,  such  as,  in  the  case  of  this  chain,  bills  of  lading  and 
express  receipts,  while  in  the  case  of  other  chains  it  might  simply 
be  a  driver's  receipt.  In  this  haberdashery  chain  there  is  a  billing 
clerk  who  decides  just  what  sort  of  case  to  use  for  each  shipment. 
Using  a  case  too  large  for  the  shipments  sometimes  make  a  differ- 
ence of  forty  cents  in  transportation  charges. 

Requisition  Blanks  and  Price  Codes. — Requisition  blanks  may, 
if  desired,  be  designed  according  to  arrangement  of  stock  in 
warehouse  to  make  it  easier  to  fill  orders.  It  is  most  important, 
however,  that  they  be  so  simple  as  to  avoid  all  possibility  of 
misconstruction.  The  requisition  blank  on  which  the  store 
manager  merely  writes  down  a  list  of  what  he  wants  is  not 
ordinarily  efficient. 

If  the  warehouse  is  divided  into  several  distinct  departments, 
the  store  manager  should  be  instructed  to  make  out  individual 
orders  on  each  department  of  the  central  organization  from  which 
he  is  ordering  supplies.  This  question  is  treated  at  length 
in  a  later  chapter.  It  is  only  desired  to  show  here  that  a  simple 
fool-proof  requisition  blank  is  important  from  the  warehouse  end 
of  the  business. 

Some  chains  find  it  desirable  to  use  codes  for  simplicity  in 
ordering.     Where  there  is  a  great  variety  of  stock,  this  practice 


THE  WAREHOUSE  91 

has  much  to  recommend  it,  or  where  there  is  some  arrangement 
according  to  departments.  The  following  is  a  description  of  a 
code  used  in  a  men's  furnishing  chain: 

"The  code  book  is  divided  into  sixteen  departments,  numbered  con- 
secutively from  1  to  16.  The  derivation  of  the  sequence  of  these 
numbers  is  the  order  in  which  they  appear  across  the  top  of  the  daily 
report.  That  is:  Silk  shirts  department  No.  1;  cotton  shirts  depart- 
ment No.  2,  etc.  In  making  up  a  number  for  an  article,  the  first  part 
of  the  number  is  the  number  of  the  department  in  which  the  article 
belongs,  the  second  is  an  initial  or  two  initials  designating  the  article, 
and  if  there  is  more  than  one  price  for  an  article  having  the  same  initial 
it  is  designated  by  a  numeral  following  the  initial.  That  is,  '1'  indi- 
cates first  price  '2'  second  price,  etc.  As  an  example,  let  us  take  knitted 
neckwear.  Neckwear  is  department  3.  'K'  is  used  to  indicate  'knitted' 
and  '1-2-3-4'  etc.  to  carry  the  price.  In  this  case  '1'  means  50c,  '2' 
means  65c  '3'  $1.00,  and  '4'  11.50,  and  it  follows  that  knitted  neckwear 
selling  at  $1.50  will  be  coded  simply  '3K4.' 

It  goes  without  saying  that  code  variations  are  numberless. 
Convenience  and  efficiency  should  be  the  sole  criteria  in  deter- 
mining the  use  of  such  a  short  cut  to  ordering. 

The  Perpetual  Inventory. — Different  plans  may  be  used  to 
keep  inventory  of  stock  in  warehouses,  but  there  is  no  disagree- 
ment on  the  fundamental  point,  that  the  inventory  is  the  key- 
note of  the  whole  structure.  On  it  depends  a  large  part  of  the 
efficiency  of  the  purchasing  organization.  The  organization 
must  know  when  it  is  getting  low  on  this  or  that  item,  and  how 
to  avoid  buying  too  much  of  something  else.  In  a  following 
chapter,  an  account  is  given  of  a  model  purchasing  and  inventory 
process.  In  this  chapter,  it  is  merely  intended  to  indicate  some 
of  the  various  methods  of  keeping  inventory. 

The  stock  record  card  is  the  simplest  form  and  the  one  ordi- 
narily most  in  use.  For  an  illustration  of  such  a  card,  see 
Fig.  30.  This  plan  can  be  used  for  almost  any  type  of  chain. 
Cards  may  vary  in  size  from  3X5  inches  to  5  X  8  inches, 
according  to  the  nature  of  the  information  which  it  is  desired  to 
include.  Ordinarily,  a  separate  card  is  used  for  each  item.  At 
the  top  of  the  card  is  listed  the  article,  the  manufacturer,  and  any 
other  general  information  necessary.     The  body  of  the  card  is 


92 


CHAIN  STORES 


arranged  in  accordance  with  the  illustration,  although  any 
additional  information  desired  may  be  added  in  extra  columns. 
It  is  most  important  in  all  cases  that  these  stock  record  cards  be 
kept  up  to  date,  and  for  that  purpose  a  special  clerk  should  be 
delegated  to  enter  receipts  and  withdrawals  on  the  card. 

Some  drug  chains,  handling  from  60,000  to  90,000  articles, 
keep  a  book  account  for  each  article.  Suppose  this  book  is 
opened  at  random  and  we  come  to  the  statement  for  Amolin, 
2-oz.  size.     The  page  would  appear  as  follows: 


Stock  Record  Book 
1922 


Article 

January 

February 

March 

April 

May 

Date 

Am't 

Date 

Am't 

Date 

Am't 

Date     Am't 

Date 

Am't 

Amolin  2-oz. 

1 
8 

10 

16 

28 

31 

450 
137 

1 

153 

323 
500 

823 
320 

503 
200 

303 
150 

153 

On  the  first  of  January  there  were  450  bottles  on  hand.  The 
eighth  of  January,  137  bottles  were  withdrawn  for  distribution  to 
retail  outlets,  leaving  323  in  stock.  On  the  tenth,  an  order  of 
500  bottles  came  in,  bringing  the  stock  up  to  823  bottles.  On  the 
sixteenth,  the  twenty-eighth,  and  the  thirty-first,  there  were 
withdrawals,  leaving  the  stock  on  hand  at  the  end  of  the  month, 
according  to  the  book  balance,  153  bottles. 

At  the  end  of  each  month  a  physical  inventory  is  taken.  In 
this  case,  the  physical  inventory  corresponded  with  the  book 
inventory,  for  there  were,  by  actual  count,  153  bottles  on  hand  in 


THE  WAREHOUSE  93 

the  warehouse,  on  February  first.  Since  there  were  450  bottles 
in  stock  the  first  of  January,  and  500  bottles  added  during  the 
month,  sales  for  the  month  are  obtained  by  subtracting  the 
inventory  for  the  first  of  February,  that  is,  153  from  950,  leaving 
total  sales  of  Amolin  for  the  month  of  January  at  797. 

Supplies  are  ordered,  as  mentioned  before,  in  accordance 
with. a  maximum  and  minimum  scale,  that  is,  an  amount  is  deter- 
mined under  whiclj  it  is  unadvisable  to  go.  In  the  same  way,  a 
maximum  amount  is  determined.  These  warehouse  maximums 
and  minimums  are  constantly  varying  as  the  chain  adds  more 
units,  or  as  seasonal  variations  affect  sales  of  various  products. 

A  Special  System. — Because  of  the  special  features  which  it 
contains  and  its  adaptability  to  a  chain  warehouse  holding  any 
kind  of  product,  a  brief  description  of  an  inventory  system  pat- 
ented by  Carl  O.  Williams,'  of  the  Acme  Cash  Basket  Stores, 
Akron,  Ohio,  is  included. 

For  example,  this  system  includes  the  following  features: 

1.  It  allows  one  man  to  keep  stock  for  an  entire  warehouse  representing 
about  1,200  to  1,500  items. 

2.  The  management  can  know  by  5  p.m.  each  evening  just  how  much 
stock  is  left  of  any  and  all  items. 

3.  No  matter  how  many  orders  go  out  during  the  day,  only  one  entry 
is  made  in  the  stock  record  book.  This  saves  time  and  work  in  fingering 
the  pages,  saves  paper,  and  avoids  the  danger  of  error.  Since  but  one 
entry  and  one  subtraction  is  made  daily,  there  is  less  chance  of  error  than 
if  thirty  or  fifty  entries  and  subtractions  were  made.  In  spite  of  the 
apparently  large  duties  of  the  stock  clerk,  he  has  no  need  of  hurrying  or 
rushing  through  his  work. 

Briefly,  there  is  a  stock  record  book  for  each  floor  of  the 
warehouse.  On  each  floor  is  an  arrangement  like  a  postoffice 
file,  containing  as  many  pigeon  holes  as  there  are  items  on  the 
floor.  These  holes  are  narrow,  about  %  of  an  inch  being  wide 
enough.  They  are  arranged  in  the  same  alphabetical  order  as  the 
pages  in  the  stock  record  book. 

Figure  8  shows  a  page  from  the  stock  record  book,  arranged 
for  a  grocery  warehouse.  The  arrangement  can  be  altered  to 
suit  any  type  of  business  which  requires  a  warehouse.  Entries 
are  made  on  this  page  but  once  daily  as  will  be  explained. 


94 


CHAIN  STORES 


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THE  WAREHOUSE  95 

All  outgoing  orders  are  recorded  by  the  stock  record  clerk. 
Suppose  he  sent  out 

1  Case  Capstan  Peas 
3  20-oz.  mop  heads 
1  half  barrel  glucose 
20  lbs.  lentils 

He  picks  up  a  "one  case"  card  and  slides  it  into  the  slot  under 
Capstan  Peas.  There  is  another  color  card  for  one  or  two 
of  any  special  item,  and  he  inserts  the  color  card  for  "3"  in 
the  20-oz.  mop  head  slot.  A  similar  card  with  a  "  1 "  on  it  goes 
into  the  half-barrel  glucose  slot.  There  is  another  color  for 
"pounds"  and  the  lentils  are  taken  care  of  by  a  card  of  that 
color  and  bearing  the  number  20. 

At  the  close  of  the  day  the  stock  clerk  runs  through  his  file 
of  cards  for  the  day.  In  the  Capstan  Pea  slot,  for  example, 
are  a  number  of  colored  cards  which  total  24  3^  dozen  cases 
for  the  day.  The  clerk  turns  to  the  Capstan  Pea  page  and 
records  down  24  3^^  dozen  cases,  subtracting  this  from  the  total 
in  stock  and  bringing  down  the  balance. 

The  stock  clerk  notifies  the  buyer  when  any  item  in  stock 
is  nearing  the  minimum.  He  makes  up  a  little  card  containing 
the  following  information. 

Name  of  item 

From  whom  purchased 

Date  and  amount  of  last  purchase 

Price  of  last  purchase 

Average  monthly  consumption 

Stock  on  hand 

Every  day  the  stock  clerk  verifies  about  ten  items  on  one 
floor  of  the  warehouse  and  corrects  the  figures  in  the  book. 
A  perpetual  inventory  needs  constant  checking  up,  no  matter  how 
good  it  is,  as  mistakes  are  bound  to  occur. 

Conclusions. — We  have  by  no  means  exhausted  the  variety  of 
inventory  systems  which  various  chains  employ.  Nothing  has 
been  said  about  the  replica  of  the  main  store,  counter  for  counter, 
which  is  maintained  by  some  five  and  ten  cent  stores  as  a  store 
warehouse.  All  these  variations  require  different  handling  of 
records  and  routine.     It  is  appreciated  that  wherever  records  are 


96  CHAIN  STORES 

concerned,  it  is  exceedingly  difficult  to  obtain  an  accurate  idea 
of  order  and  sequence  unless  one  particular  system  is  taken, 
and  the  process  followed  through  from  beginning  to  end.  For 
this  reason,  Chap.  XVI  is  devoted  to  purchasing  and  ware- 
housing records  as  employed  in  one  chain. 

The  theory  of  warehousing  can  be  readily  summed  up: 

1.  A  warehouse  building  large  enough  to  contain  sufficient 
stock   and   conveniently  located  in  relation  to  retail  outlets. 

2.  A  system  of  records  which  will  keep  the  buyer  constantly 
and  accurately  informed  of  stock  on  hand  at  any  moment. 


CHAPTER  VII 
THE  SALES  PROBLEM 

Outline 

Seasonal. 

1.  Stimulus  to  retail  selling  by 

(a)  Holidays. 

1.  Christmas. 

2.  Easter. 

2.  Necessity  of  preparations 

(o)  To  distribute  sales. 

3.  Sales  records  as  bases  of  predicting  seasonal  volume 

(a)  For  entire  organization. 
(6)  For  individual  stores. 
Daily. 

1.  Importance  of  Saturday. 

2.  Influence  of  weather. 

(a)  Rain. 

(b)  Excessive  heat  or  cold. 
Business  conditions. 

1 .  Ability  of  chain  stores  to  weather  financial  stress. 

2.  Business  of  chains  dealing  in  necessities  actually  better  in  periods  of 

economic  depression. 
The  product. 

1.  Characteristics. 

(a)  A  necessity  or  semi-necessity. 
(6)  Turns  over  rapidly. 

(c)  Portable. 

2.  Number. 

(a)  Large  variety. 

(b)  Standard  sizes  only. 

1.  Extra  large  and  extra  small  avoided. 

2.  Sizes  most  commonly  required. 

(c)  Standard  styles. 

3.  QuaUty. 

(a)  Necessity  of  uniformity. 

4.  Trend  towards  packaged  goods. 
Merchandising  policies. 

1.  Display. 

(a)  Window  trims. 
7  97 


98  CHAIN  store;^ 

(b)  Counter  displays. 

(c)  Shelf  displays. 

2.  Cut  price  sales. 

(o)  Loss  leaders  or  weekly-specials. 
(b)  One  cent  sales. 

3.  Seasonal  sales. 

(a)  Small  necessity  of 

4.  Novelty  sales  or  selling  ideas. 

(a)  Cooperative  merchandising  campaigns. 

5.  Premiums  and  trading  stamps. 


CHAPTER  VII 
THE  SALES  PROBLEM 

All  chain  store  problems  are  affected  by  the  question  of  sales, 
for  a  chain  store  organization  is  essentially  a  highly  organized 
retail  selling  machine.  The  purchasing  agent,  before  any  pur- 
chasing is  done,  must  know  the  rate  at  which  goods  can  be  sold. 
Furthermore,  the  nature  of  his  purchases  must  be  regulated  by 
the  buying  desires  of  the  public.  The  personnel,  the  store  mana- 
gers, the.  clerks,  the  supervisors,  etc.,  are  all  people  who  have 
been  trained  in  the  art  of  selling.  All  efforts  made  to  maintain 
morale  have  been  made  with  the  intent  of  increasing  sales. 

In  this  chapter  three  phases  of  the  sales  problem  are  discussed : 

1.  Causes  which  lead  to  fluctuations  in  sales,  either  regular  or  irregular, 
over  periods  of  time. 

2.  The  general  nature  of  products  sold  in  chain  stores. 

3.  Various  merchandising  plans  and  policies. 

In  general,  the  laws  of  merchandising  which  apply  to  any 
retail  selling  organization  apply  to  chain  stores,  with  the  excep- 
tion that  national  chains  have  a  great  many  problems  due  to 
their  broad  distribution  that  do  not  come  up  in  handling  an 
independent  business  or  even  a  small  local  chain.  For  example, 
it  is  quite  evident  that  the  tastes  of  one  community  will  not 
coincide  exactly  with  the  tastes  of  another,  nor  can  any  efforts 
on  the  part  of  the  clerks  offset  this  community  antagonism  to 
particular  products.  On  this  point  the  standardized  policy  of 
the  chain  must  give  way. 

As  far  as  possible,  conditions  applying  to  the  majority  of 
chains  are  used.  But  each  chain  has  to  face  these  conditions 
in  different  ways. 

Seasonal  Fluctuations. — Chain  store  organizations,  as  almost 
every  other  merchandising  activity,  are  affected  by  seasonal 
trends.  Christmas  is  an  almost  universal  stimulant  to  every 
business.     The  summer  is  apt  to  mark  a  falling  off  in  most  lines. 

99 


100 


CHAIN  STORES 


Every  different  product  has  its  off  seasons.  Seasonal  activities 
are  regular  in  occurrence  as  differentiated  from  periods  of  pros- 
perity and  depression  which  alternate  at  infrequent  intervals. 
For  purposes  of  illustration  the  monthly  sales  of  the  F.  W. 
Woolworth  Co.  for  1918-1921  have  been  taken.  The  sales  of 
this  company  serve  well  as  an  example  because  the  five  and  ten 


n 

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1921               1920                 1919             1918          " 
J.BU«ry.             $8^6,208     J8,491,203     $7,127,859     »5,921,295 

5 

M»rch,               11330,973     10,852,951       9,121.342       8,712,378 

A. 

Mmy.                 11,202,722     11,320,849      9,924.491       8331,101 

3 

July,                  10.744,282    11,282,810      8,717,793      8,608,142 
August,             11.637.378     11,069.968      9.553,121      9,552,898  — 
September.        11.326,709    10,954,353      9,048,854      8,768,774 
October.             14,406,922     13,242,233r    10.742,643      9,331,380  _ 
November.        13,fD9,603     12,427,566    10,985,136     10,094,984 
December.         24,155,400   21.521,798     19,374,740     15,422,14«  .- 
Tot»l.           t*7,592^2 140.910.267  119.501,009  107.179.414  j 

2 

1 

Fig.  9. — Monthly  sales  of  F.  W.  Woolworth  Company,  1918-1921. 


cent  store  business  is  not  one  primarily  affected  by  good  times 
or  hard  times.  This  factor  has  but  slight  significance  in  deter- 
mining volume  of  sales. 

Glancing  at  Fig.  9,  it  is  apparent  immediately  that  each 
Christmas  brings  a  great  peak  of  business  activity.  The  month 
of  December  alone  doubles  the  average  sale  of  any  of  the 
preceding  11  months.  One  point  of  value  is  at  once  evident. 
The  company  must  prepare  in  advance  for  this  inrush  of  business, 


THE  SALES  PROBLEM 


101 


and  from  its  records  it 
can  forecast  with  fair 
certainty  the  volume  of 
sales  in  each  particular 
store. 

Looking  further, 
another  peak  is  seen  in 
March  or  in  April,  a 
much  lesser  peak  but 
still  appreciable,  and 
this  can  be  attributed 
to  Easter  sales.  There 
is  a  drop  in  late  sum- 
mer reflecting  vacation 
times,  and  thereafter 
business  is  fairly  good 
until  the  Christmas 
rush  suddenly  doubles 
sales.  January  and 
February  bring  the 
lowest  ebb  of  the  year's 
business.  The  experi- 
ence of  the  Woolworth 
chain  is  not  unique. 
The  other  five  and  ten 
cent  store  chains  experi- 
ence the  same  seasonal 
trends. 

What  is  shown  so 
clearly  by  the  Wool- 
worth  case  is  applied 
more  generally  in  Fig. 
10,  comparing  a  num- 
ber of  chain  stores  with 
each  other  and  with 
department  stores, 
apparel  stores,  and 
mail  order  houses. 
Chain   groceries    show 


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FiQ.  10. — Comparison  of  seasonal  trends  (chart 
prepared  by  Federal  Reserve  Bank  of  New 
York). 


102 


CHAIN  STORES 


the  least  seasonal  peaks  with  chain  drugs  reflecting  only 
Christmas  activity.  Chain  cigar  stores  and  chain  dry  goods 
have  decided  seasonal  peaks.  In  the  case  of  the  drygoods 
chains  there  is  a  distinct  mid-summer  reaction. 

Figure  11  is  a  composite  chart  of  retail  activities  averaged 
over  1919,  1920  and  1921.  This  shows  plainly  the  falling  off  in 
January  and   February,   the  recovery  lasting  until  the  end  of 


KO 


AVERAGE 

a.3  — 


JAN.  f£B.  MAR.  APR.  MAY  ML  JULY  AUa  SEPT.  OCT.  NOV,  D£Ck 


Fig.  11. — How  retail  sales  vary  with  the  seasons  (chart  prepared  by  Federal 
Reserve  Bank  of  New  York). 

June,  the  summer  apathy  and  the  fall  rise  culminating  at  Christ- 
mas time. 

The  United  Cigar  Stores  Co.  has  spent  a  great  deal  of  time  and 
thought  on  the  seasonal  problem  and  has  done  much  towards 
distributing  the  seasonal  peaks.  For  example,  its  executives 
realized  that  in  the  holiday  season  the  stores  would  be  overcrowded 
and  many  sales  lost,  unless  some  means  were  taken  to  spread  the 
sales  out  over  a  few  weeks  prior  to  the  actual  event.  As  it  is 
against  the  policy  of  the  chain  to  feature  cut-price  sales,  unusual 
offers  are  made,  such  as  including  extra  articles  for  the  same  price, 
and  these  offers  are  made  some  time  before  Christmas. 


THE  SALES  PROBLEM  103 

In  January  and  February  tobacco  sales  are  poor.  In  addition 
to  the  post-holiday  apathy,  there  is  the  fact  that  smokers  do 
not  enjoy  smoking  out-of-doors  in  very  cold  weather.  Also, 
many  are  consuming  the  cigars  given  them  for  Christmas.  Thus 
special  sales  are  again  resorted  to.  One  year  every  purchaser 
of  a  pipe  was  given  one  half  the  amount  of  his  purchase  in  any- 
thing in  the  store.  The  company  figured  that  these  special 
sales  gave  enough  news  value  in  advertising  to  pay  the  actual 
falling-off  in  profits. 

What  has  been  done  by  this  company  can  also  be  done  else- 
where. With  the  records  of  sales  for  previous  years  as  a  basis, 
some  scheme  can  be  worked  out  for  distributing  seasonal 
congestion,  and  perhaps  bringing  up  sales  in  off-seasons. 

Daily  Fluctuations. — It  is  not  only  possible  to  forecast  monthly 
sales  by  a  careful  study  of  records,  but  daily  sales  as  well.  Some 
days  in  the  week  are  far  better  for  business  purposes  than  others. 
For  example,  the  Great  Atlantic  &  Pacific  Tea  Co.  does  half  the 
total  business  of  the  company  on  Fridays  and  Saturdays.  To  a 
great  extent  the  same  is  true  of  the  five-  and  ten-cent  store  chains. 
Officials  of  F.  W.  Woolworth  Co.  point  out  that  sales  on  Saturday 
are  usually  $800,000,  or  equal  to  the  business  of  two  days  during 
the  week. 

Daily  sales  cannot,  however,  be  forecasted  with  such  accuracy 
as  monthly  sales,  because  other  factors  enter  the  equation. 
For  example,  few  people  shop  in  very  stormy  weather,  or  very 
hot  or  very  cold  weather.  Weather  extremes  discourage  retail 
sales  activity. 

Where  a  chain  deals  in  perishable  goods  this  element  of 
uncertainty  is  important.  Mort  Hamburger,  Sales  Promotion 
and  Advertising  Manager  of  the  Federal  System  of  Bakeries  of 
America,  Inc.,  says:  "In  any  retail  bakery  business  there  is 
always  the  element  of  what  we  have  termed  'day-old  bread.' 
The  ideal  situation  in  the  Federal  Bakery  is  to  sell  out  the  daj'^'s 
output  of  bread.  Certain  kinds  of  pastries  can  be  carried  over 
without  losing  their  flavor  or  taste  and  are  just  as  palatable  the 
second  day  as  the  first.  Practically  every  Federal  Bakery  has  an 
unusually  heavy  bake  Friday  nights  in  order  to  have  sufficient 
supply  of  merchandise  saleable  for  Saturday,  and  hence  it  is 
necessary  to  carry  not  only  cakes  and  pastries,  but  extra  bread." 


104  CHAIN  STORES 

As  far  as  regulating  the  production  of  baked  goods  in  Federal 
shops  is  concerned,  this  is  left  entirely  to  the  judgment  of  the 
manager.  In  the  cash-and-carry  business  it  is  dijfficult  to  judge 
to  the  very  loaf  just  how  large  a  quantity  should  be  baked.  After 
all  is  said  and  done,  the  element  of  production  is  the  one  problem 
in  the  bakery  business  that  cannot  be  solved  accurately. 

A  sudden  down-pour  of  rain,  or  an  unusually  cold  or  warm 
day,  will  have  a  marked  effect  on  the  cash-and-carry  business, 
and  managers  are  at  all  times  on  the  lookout  for  these  hazardous 
days.  Every  manager  in  the  Federal  System  gets  a  daily  report 
on  the  weather  and  is  guided  accordingly  when  ordering  his 
bake.  If,  for  instance,  on  a  Friday  night  the  manager  gets  a 
report  from  the  Weather  Bureau  to  the  effect  that  Saturday 
will  be  a  cold,  rainy  day,  he  will  cut  down  his  production  a  little 
bit  so  as  to  avoid  the  possibility  of  discards. 

Although  the  weather  may  be  the  cause  of  decreasing  some 
sales,  the  chain  drug  store  which  carries  umbrellas  will  find 
a  sudden  increase  in  sales,  the  chain  shoe  store  will  double  its 
sales  of  rubbers,  etc. 

Business  Conditions. — Apart  from  any  seasonal,  daily,  or 
climatic  influences  on  sales,  chain  store  organizations  are  subject 
to  the  general  effects  of  business  prosperity  and  depression. 
This  is  very  unequally  distributed  in  its  action,  largely  due  to 
the  nature  of  the  product,  the  successful  purchasing  policy  of 
the  chain,  the  wisdom  of  the  management  in  foreseeing  condi- 
tions, etc. 

The  five-  and  ten-cent  store  suffers  little  from  business  depres- 
sion. The  Wool  worth  sales  chart  readily  shows  that  the  business 
depression  of  1920-1921  failed  to  retard  to  any  marked  degree 
the  healthy  growth  of  the  chain.  In  fact,  it  is  true  that  in  hard 
times  more  people  patronize  the  five-  and  ten-cent  stores  than  in 
good  times.  In  a  grocery  chain,  normally  dealing  in  low-priced 
staple  articles,  business  depression  also  has  but  a  slight  hold. 

The  Product. — What  sort  of  goods  can  be  sold  in  chain  stores? 
At  first  thought  it  would  seem  almost  everything.  It  is  not 
limited  to  tangible  products  but  can  be  extended  to  intangible 
products  such  as  a  chain  of  theatres,  hotels,  and  shoe  repair 
shops.  Now,  are  there  are  rules  which  can  be  applied  to  the 
choice  of  products  possible  to  sell  through  retail  chains?     Theo- 


THE  SALES  PROBLEM  105 

retically  the  answer  would  be  "No,"  but  no  system  has  yet  been 
evolved  which  makes  possible  a  successful  chain  for  retailing 
some  products  There  may  be  isolated  examples  of  small  chains, 
but  there  are  no  great  chains  of  jewelry  stores  or  furniture  stores. 
Thus  there  must  be  some  general  principles  which  govern  the 
products  sold  in  chain  stores. 

1.  The  more  rapid  the  turnover^  the  more  adapted  the  product  is  for 
chain  store  retailing.  A  well-known  brand  of  cigarettes,  turning  once  a 
week,  is  better  than  a  line  of  cut  glass  turning  once  a  year.  Slow  turn- 
over means  large  overhead  expenses  which  means  failure  in  efficient  chain 
store  operation. 

2.  The  product  should  preferably  be  a  necessity  or  a  semi-necessity. 
The  chain  store  must  have  constant  patronage.  It  must  be  able  to  predict 
its  purchasing  requirements.  Demand  for  luxuries  is  uncertain  and  the 
larger  profit  cannot  offset  this  uncertainty. 

3.  The  article  should  be  portable.  Since  most  chain  stores  are  cash- 
and-carry  retail  outlets,  the  easier  the  article  is  to  wrap  up  and  take  away, 
the  more  sales  can  be  made. 

4.  The  product  should  be  such  as  to  permit  centralized  and  standardized 
executive  control. 

The  fact  that  a  product  is  merchandised  successfully  through 
chain  stores  without  fulfilling  all  these  requirements  does  not 
prevent  these  rules  from  general  application. 

The  Number  of  Products. — A  chain  store  may  carry  a  larger 
variety  or  a  smaller  variety  of  goods  than  its  independent  com- 
petitor. In  a  grocery  chain  the  number  is  usually  smaller. 
The  Kroger  Grocery  &  Baking  Co.  usually  carries  not  more  than 
400  brands  in  place  of  900  to  1,000  carried  by  the  independent 
grocery.  The  reason  here  is  that  the  chain  store  carries  only 
groceries  which  turn  over  rapidly.  No  brands  of  questionable 
reputation  are  stocked.  No  goods  for  which  there  is  little  call 
are  allowed  to  take  up  valuable  space  on  the  shelves.  The 
Piggly  Wiggly  Co.'s  stores  are  necessarily,  because  of  the  self- 
service  idea,  restricted  in  products  to  the  best  known  brands. 
This  policy  allows  concentration  on  a  few  lines. 

The  case  of  the  drug  store  is  the  reverse.  The  large  chain 
store  is  likely  to  have  a  much  larger  variety  of  products,  due  to 
its  great  merchandising  power.  The  chain  drug  store,  usually 
located  in  very  advantageous  city  sites,  can  often  stage  a  special 


106  CHAIN  STORES 

sale  and  complete  it  in  one  day  by  means  of  newspaper  adver- 
tising, a  proceeding  outside  the  reach  of  the  independent  druggist . 

The  stock  problem  of  the  five-  and  ten-cent  store  is  a  difficult 
one.  Professor  Duncan  in  his  book  "Marketing,  Its  Problems 
and  Methods,"  states  that  92  per  cent,  of  the  stock  of  such  a  store 
is  made  up  of  every  day  necessities,  four  per  cent,  luxuries,  candy 
and  jewelry  novelties  two  per  cent.,  and  fads  and  souvenirs  two 
per  cent.  more.  In  addition  there  is  always  an  opportunity 
for  trying  out  experimental  goods.  Some  five-  and  ten-cent 
stores  take  on  as  many  as  48  different  lines  of  goods,  including 
groceries,  automotive  parts,  etc.,  and  with  such  appurte- 
nances as  a  flower  department,  a  photograph  gallery,  a  soda 
fountain,  and  a  restaurant.  It  is  claimed  that  the  limit  of 
expansion  has  been  reached  in  the  variety  field,  and  that  further 
extension  of  lines  carried  must  be  reached  by  raising  the  price 
limit.  In  support  of  this  argument,  it  is  noteworthy  that,  with 
the  exception  of  Woolworth,  the  other  five-  and  ten-cent  store 
chains  have  raised  their  price  limit  while  retaining  the  selling 
advantage    contained   in   the   name   five-   and   ten-cent   store. 

The  United  Cigar  Stores  Co.  claims  to  have  deviated  in  but 
two  respects  from  its  original  policy,  and  one  of  these  deviations 
was  to  take  on  the  retailing  of  sundry  merchandise  such  as  candy, 
chewing  gum,  safety  razors,  playing  cards,  etc.  Several  mem- 
bers of  the  organization  were  averse  to  taking  on  lines  which 
would,  in  their  opinion,  detract  from  the  individuality  of  the  store 
and  render  a  clerk  trained  to  sell  only  tobacco  products  less 
efficient  when  he  had  other  things  to  sell  as  well.  As  a  com- 
promise, at  first  only  goods  were  taken  on  which  did  not  require 
to  be  sold,  but  only  put  on  display.  Then  other  articles  were 
tried  out.  Pencils,  handkerchiefs,  and  books  were  not  par- 
ticularly successful,  but  chewing  gum  was  an  immediate  success. 
Candy  was  sold  in  packaged  form.  At  one  time  a  bulky  glass 
jar  was  introduced  for  use  at  home  for  holding  cigars  and 
sales  surpassed  all  expectations,  the  jars  being  carried  off  in 
thousands. 

When  the  United  Retail  Candy  Stores  Co.  started  in  business, 
it  was  feared  that  sales  of  candy  in  the  cigar  stores  would  imme- 
diately fall  oflf,  but,  on  the  contrary,  no  effect  has  been  observed. 
A  cigar  store  is  an  excellent  place  for  retailing  candy  as  a  side 


THE  SALES  PROBLEM  107 

line,  because  approximately  80  per  cent,  of  all  candy  sales  are 
made  to  men. 

Number  of  Lines. — The  policy  of  pleasing  the  public  extends 
logically  to  the  number  of  lines  carried,  and  even  to  the  sizes  in 
particular  lines.  The  manufacturer's  great  problem  in  selling  the 
chain  stores  is  to  create  a  demand  for  his  product  among  the 
public.  If  any  missionary  work  is  to  be  done  by  the  chains,  they 
do  it  in  behalf  of  their  own  products  and  private  brands.  Manu- 
facturer's goods  must  sell  themselves. 

Grocery  stores  ordinarily  limit  the  number  of  sizes  of  a  par- 
ticular line  in  stock.  Extra  large  packages  are  avoided  both 
because  of  the  difficulty  in  carrying  away  and  because  there 
is  comparatively  little  demand  for  them.  A  customer  will 
usually  take  two  of  the  smaller  size  if  she  desires  a  considerable 
quantity. 

The  Dotson-Kerwin  stores,  in  Iowa,  have  an  ingenious  method 
whereby  a  stock  of  odd  sizes  sufficient  for  one  store  is  made  to  do 
for  five,  and  by  this  method  makes  it  possible  to  secure  a  large 
enough  turnover  of  these  odd  lines  to  warrant  carrying  them. 
The  company  has  five  stores,  in  Waterloo,  Independence,  Oel- 
wein,  Vinton,  and  Cedar  Falls.  Although  Waterloo  is  about 
four  times  the  size  of  the  other  towns,  all  stores  are  stocked 
uniformly  as  to  variety  and  grade.  The  size  of  the  stock  varies, 
of  course,  with  the  demand.  "Off  sizes,"  says  an  article  in  the 
Chicago  Apparel  Gazette,  ''are  carried  by  each  store,  and  each 
store  keeps  a  list  of  odd  sizes  and  patterns  carried  by  the  other 
stores."  As  the  stores  are  all  within  a  radius  of  30  miles,  when- 
ever a  customer  asks  for  an  odd  size  and  it  is  not  in  stock, 
the  clerk  looks  it  up  in  the  card  file  and  in  a  few  moments 
has  telephoned  and  is  assuring  the  customer  he  can  get  it  that 
afternoon. 

As  a  general  rule,  however,  chain  stores  do  not  and  should 
not  attempt  to  carry  anything  but  standard  sizes  and  lines. 

Quality. — It  is  a  peculiarity  of  human  nature  that,  whatever 
price  is  charged  for  an  article,  the  customer  expects  good  quality. 
No  chain  store  can  afford  to  sell  inferior  goods.  Like  the  attitude 
of  the  clerk,  the  quality  of  the  articles  offered  reacts  on  sales  in  all 
the  other  stores  of  the  chain.  Grocery  chains  ordinarily  make 
a  practice  of  inspecting  all  goods  at  the  warehouse  and  exercising 


108  CHAIN  STORES 

the  most  careful  supervision  over  standardization  of  quality 
under  brand  names. 

Enough  has  already  been  said  about  the  necessity  for  turnover 
and  fresh  stock,  under  the  head  of  purchasing.  Quality  goods  are 
necessarily  fresh  and  not  left-overs.  No  chain  store  organization 
should  try  experiments  with  the  quality  of  its  products.  The 
best  for  the  price  is  none  too  good. 

Packaged  Goods. — Wherever  possible,  chain  stores  prefer  to 
sell  packaged  goods.  The  grocery  chains  and  the  drug  chains  are 
the  outstanding  examples  of  this  tendency.  At  one  time  the 
grocer  measured  out  ten  pounds  of  sugar  and  five  pounds  of  corn 
meal,  etc.  Now  he  simply  hands  over  the  counter  a  neat  package 
all  done  up.  Packaged  goods  are  another  move  towards  effi- 
ciency since  they  eliminate  a  great  deal  of  time  spent  in  preparing 
bulk  articles  for  a  customer.  In  many  cases,  a  clerk  could  wait 
on  two  or  three  customers  while  measuring  and  doing  up  parcels 
of  bulk  articles  for  one  customer.  Recently  one  large  chain 
store  grocery  did  away  with  all  its  coffee-grinders,  confining  sales 
of  coffee  to  packaged  goods. 

Where  chain  stores  do  carry  bulk  articles,  it  is  a  wise  practice 
to  have  clerks  get  standard  weights  wrapped  up  and  ready 
in  their  spare  moments,  so  that  no  time  will  be  lost  in  making 
sales. 

The  Place  of  the  Product  in  Chain  Store  Merchandising. — 
The  product  plays  a  larger  part  in  chain  store  merchandising 
than  in  the  merchandising  policies  of  a  single,  independent  store, 
because  chain  stores  depend  so  much  on  display,  on  the  appeal 
of  the  article  to  the  eye  of  the  consumer.  In  the  five-  and  ten- 
cent  store  the  product  must  virtually  sell  itself.  The  policy  of 
substitution  has  almost  died  out  and  the  chain  store  customer 
may  be  sure  of  getting  what  he  wants. 

The  merchandising  plans  and  policies  of  chain  store  organi- 
zations are  not  build  around  service,  nor  exclusiveness  of  trade, 
but  solely  around  the  product.  In  many  cases  it  may  be  the 
price  of  the  product.  Probably  in  the  majority  of  cases  price  will 
be  the  basis  upon  which  the  merchandising  policies  are  formu- 
lated. But  some  chains  emphasize  the  quality  of  the  product. 
The  more  necessary  an  article  to  the  consumer,  the  less  sales 
effort  is  required  to  dispose  of  it.     It  becomes  a  question  of  sell- 


THE  SALES  PROBLEM  109 

ing  a  number  of  staple  articles  to  the  consumer  by  efficient 
display,  seconded  by  other  selling  methods. 

Chain  store  organizations  have  certain  settled  merchandising 
policies,  some  of  which  are  inseparably  connected  with  the  chain 
idea,  and  other  of  which  are  elaborations  of  ordinary  retail 
selling  methods.     For  example 

1.  Efficient  display. 

(a)  Window  trims. 

(6)   Counter  displays. 

(c)   Shelf  display  of  product. 

2.  Cut  price  sales. 

(a)  Loss  leaders. 

(b)  One-cent  sales. 

3.  Seasonal  sales. 

4.  Special  novelty  sales. 

5.  Premiums  and  trading  stamps,  etc. 

The  first  point  has  been  treated  at  length  in  the  chapter 
on  the  member  store. 

The  theory  of  pricing  will  be  discussed  in  the  following  chapter. 
The  point  to  be  brought  up  here  is  the  effect  of  pricing  as  a  sales 
appeal.  ''All  people  want  to  make  a  good  bargain.  Let  them!" 
said  Frank  W.  Woolworth,  and  he  proceeded  to  base  his  whole 
merchandising  campaign  on  a  display  of  goods  at  the  lowest 
possible  prices. 

Many  chains  have  a  fixed  policy  of  featuring  each  week  a 
so-called  "loss  leader."  That  is,  some  well  known  article,  the 
price  of  which  is  usually  standard  and  known  to  the  majority  of 
purchasers,  is  put  on  sale  at  actual  cost  to  the  chain  or  even  at 
a  slight  loss.  This  is  done  on  the  theory,  which  works  out  in 
practice,  that  people  will  be  attracted  to  this  bargain  and  will 
buy  other  goods  as  well. 

Loss  leaders  are  often  termed  "  weekly  specials."  One  chain 
says:  "Our  business  was  built  up  on  the  idea  of  weekly  specials. 
Every  week  we  cut  the  price  of  about  twenty  items  in  the  store 
and  sell  them,  for  that  week  only,  at  what  amounts  to  almost 
a  wholesale  price.  "Many  other  chain  stores  follow  this  idea 
with  their  own  variations. 

The  "One-cent"  sale,  so  highly  and  successively  featured 
by  the  Liggett  stores,  is  one  of  the  variations  of  this  loss  leader 


110  CHAIN  STORES 

idea,  very  ingeniously  carried  out.  At  first  glance,  it  actually 
appears  as  if  the  drug  store  were  taking  a  terrific  loss.  The 
explanation,  however,  is  simple. 

The  person  in  charge  of  organizing  the  sale  makes  a  hst  of 
long-price  articles,  that  is  articles  the  cost  to  the  store  of  which 
is  quite  low  compared  with  the  selling  price.  Suppose,  for 
example,  that  an  article  cost  10  cents  and  retailed  for  25  cents. 
This  leaves  a  gross  profit  to  the  store  of  60  per  cent.  Now  sup- 
pose a  1  cent  sale  is  announced,  that  is,  a  purchaser  can  obtain 
two  of  these  articles  for  the  price  of  one.  By  paying  26  cents, 
the  customer  can  procure  two  packages  of  the  25-cent  size.  One 
article  is  sold  for  25  cents  and  the  other  for  one  cent.  If  the  aver- 
age cost  of  doing  business  is  20  per  cent,  no  money  is  actually  lost 
on  the  sale.  By  increasing  the  turnover,  the  expense  of  operation 
is  reduced. 

Seasonal  Sales.^ — Generally  speaking,  the  chain  stores  make 
much  less  use  of  the  season  as  an  excuse  for  staging  special  sales 
than  regular  independent  organizations.  The  reasons  are 
obvious.  The  chain  store,  with  its  larger  turnover,  its  more 
efficient  purchasing  organizations,  and  its  wide  distribution,  is 
able  to  sell  its  goods  as  they  come  in.  Chains,  like  Penney, 
which  make  a  rule  never  to  buy  ahead,  naturally  never  have 
seasonal  cut-price  sales. 

Grocery  chains  often  have  a  canned  goods  sale,  but  these  are 
rather  in  the  nature  of  loss  leaders  than  genuine  seasonal  clearing 
out  of  stock.  Chain  shoe  stores,  like  any  other  shoe  store, 
have  seasonal  sales,  but  often  this  is  due  to  the  large  number  of 
manufacturers'  chains  included  among  the  chain  shoe  retailers. 

The  average  chain  considers  it  more  profitable  to  estimate 
seasonal  demands  closely  enough  so  that  there  will  be  no  large 
surplus  of  left-overs,  with  overhead  expenses  of  storage  and  sales 
losses. 

Special  Novelty  Sales. — Originality  in  selling  methods  always 
attracts  the  public.  Feature  sales  are  always  popular  with  firms 
which  advertise.  It  gives  them  something  to  talk  about  and 
explain.  Novelty  in  window  display  is  another  method.  But 
new  selling  ideas  pay  better  than  any  other  method. 

President  Ralph  B.  Wattley  of  the  National  Drug  Stores 
says  his  ideas  were  founded  on  what  he  himself  would  like  to 


THE  SALES  PROBLEM  111 

find  on  entering  a  chain  store.  One  of  the  first  things  he  did  was 
to  bring  the  prescription  counters  out  in  plain  sight  instead 
of  keeping  them  in  the  rear  according  to  traditional  drug  store 
practice.  (See  Fig.  12.)  Then  he  formulated  the  policy  of  selling 
all  prescriptions  at  cost,  the  company  even  going  so  far  as  to 
carry  part  of  the  cost.  This  was  like  offering  the  public  some- 
thing in  the  nature  of  a  perpetual  loss  leader  with  a  reduction  of 
something  like  50  per  cent,  to  the  public.  This  was  a  new  idea 
and  quite  opposite  to  the  trend  in  some  drug  chains  to  minimize 
the  prescription  business  or  even  concentrate  it  in  a  few  stores. 

One  day  he  observed  a  man  who  was  rushing  from  one  counter 
to  another  in  the  endeavor  to  make  up  a  list  of  purchases.  This 
man  was  evidently  in  a  great  hurry  and  was  much  inconvenienced 
by  the  fact  that  he  had  to  go  from  counter  to  counter  to  make 
his  purchases.  President  Wattley  immediately  conceived  the 
idea  of  a  men's  department,  carrying  all  the  small  articles  a  man 
would  be  likely  to  purchase.  It  would  contain  everything  from 
razor  blades  to  poker  chips. 

The  Federal  System  of  Bakeries  occasionally  features  a 
novelty  product.  They  originated  a  name  for  a  slightly  different 
product  such  as  Priscilla  Cake,  Oliver  Twist,  the  Longfellow 
Loaf,  Tokio,  and  Honey  Boys.  Generally  speaking,  these  names 
convey  little  of  the  nature  of  the  product.  To  each  product 
one  solid  week  of  selling  effort  is  devoted  and  to  this  end  all 
merchandising  policies  are  bent.  In  Tokio  week,  for  example, 
the  following  merchandising  plan  was  followed : 

1.  The  product — a  poppy  seed  loaf  of  bread  with  slightly  different  shape. 

2.  The  advance  window  paster  "teaser." 

3.  The  window  displays. 

4.  The  inside  store  displays. 

5.  Advertising  and  publicity. 

6.  Sales  caps  for  the  sales  girls. 

It  should  be  stated  that  previous  to  putting  on  the  complete 
sales  campaign,  the  detail  had  been  carefully  worked  out  in 
several  cities  on  a  test-campaign  basis. 

During  the  Tokio  week,  sales  of  Tokio  bread  averaged  4.2 
per  cent,  of  total  sales,  two  stores  going  over  11  per  cent.  As  a 
method  of  stimulating  sales  and  gaining  publicity  it  was  a  distinct 
success  because  of  the  carefully  planned  campaign. 


112 


CHAIN  STORES 


THE  SALES  PROBLEM  113 

Cooperative  Mechandising  Campaigns. — There  has  been  a 
movement  of  recent  years  by  manufacturers  to  cooperate  with 
retailers  in  staging  sales  campaigns.  This  is  but  another  phase 
of  the  trend  towards  more  direct  distribution,  but  it  deserves 
close  watching  in  the  future. 

The  Sun-Maid  Raisin  Co.,  which  recently  ceased  distribution 
through  jobbers,  cooperated  with  the  Federal  System  of  Bakeries 
in  putting  on  a  Sun-Maid  raisin  week.  Since  many  of  the 
bakery's  products  were  naturally  made  with  raisins,  any  increased 
sales  would  accrue  both  to  the  benefit  of  the  manufacturer  and  the 
chain.  The  following  analysis  of  results  accomplished  by  retail 
units  during  the  Sun-Maid  week  is  interesting  as  showing  what 
such  cooperation  will  effect. 

Average  sale  for  raisin  bread  three  weeks  prior  to 

Raisin  Week $19.66 

Average  sale  raisin  bread  during  Raisin  Week 26 .  03 

Average  sale  two  weeks  following 20 .  94 

This  meant  that,  during  Raisin  Week,  sales  of  raisin  bread 
increased  32]^^  per  cent.  Although  sales  afterwards  fell  off,  there 
was  a  net  gain  of  63^^  per  cent. 

Chain  organizations  with  manufactured  products  of  their  own 
normally  prefer  to  feature  such  products,  but  there  are  undoubt- 
edly possibilities  in  the  idea  which  have  not  yet  been  fully 
exploited. 

Premiums  and  Trading  Stamps. — The  premium  department 
of  the  United  Cigar  Stores  Company  is  one  of  the  features  of  the 
company.  The  policy  of  giving  premiums  was  initiated  when 
this  company  first  started  in  business.  A  special  company  was 
formed  to  take  hold  and  expand  the  premium  end  of  the  business. 
Originally  the  list  of  articles  given  away  in  return  for  premiums 
was  chiefly  made  up  of  articles  which  men  ordinarily  liked, 
but  it  was  soon  found  that  silk  stockings  and  other  articles  for 
women  assumed  marked  importance  and  the  premium  list  was 
accordingly  enlarged. 

The  clerk  is  instructed  to  place  the  certificate  in  the  consumer's 
hand.  Otherwise  not  half  of  them  would  be  taken.  The 
premium  department  buys  all  merchandise  at  half  the  price 
the  consumer  would  have  to  pay  and  it  gives  these  premiums  as 

8 


114  CHAIN  STORES 

an  inducement  for  the  customer's  trade.  By  buying  at  the 
United  Cigar  Stores,  in  other  words,  and  saving  up  the  coupons, 
the  customer  can  redeem  these  coupons  for  articles  at  virtually 
wholesale  prices. 

Cost  is  figured  on  a  100  per  cent,  redemption  basis,  and  is  taken 
care  of  by  profits  from  increased  sales.  Of  course,  there  is  never 
a  100  per  cent,  redemption.  In  one  year  the  United  Cigar  Stores 
had  86^  per  cent,  of  its  premiums  redeemed,  a  figure  remarkably 
high.  When  redemption  percentage  is  low,  profits  are  left 
with  which  to  start  new  premium  stations,  pay  clerks,  etc. 

Some  chains  use  trading  stamps  as  a  drawing  card  for  customers, 
but  the  practice  has  never  become  very  wide  spread.  Premiums 
and  trading  stamps  are  both  forms  of  service  which,  in  particular 
cases,  it  is  found  profitable  to  give  because  of  the  increased  sales 
resulting  from  them,  and  the  consequently  increased  profits 
to  take  care  of  the  increased  cost. 

Conclusions. — The  sales  problem  is  the  great  problem  in  chain 
store  retailing.  All  others  are  subordinated.  Without  volume 
of  sales  there  can  be  no  success,  because  the  narrow  margin  of 
profit  absolutely  demands  this  volume.  Thus  the  first  principle 
of  sales  is  to  find  out  what  the  public  wants.  The  owner  of  one 
small  drug  chain  installed  a  want  book  and  noted  down  every- 
thing asked  for  in  his  drug  stores,  from  hair  nets  to  piano  strings. 
In  this  way  he  was  led  to  stock  tennis  and  golf  supplies,  fishing 
tackle,  baseball  goods,  bathing  suits,  fountain  pens,  alarm  clocks, 
and  scissors.  He  was  able  to  sell  this  heterogeneous  collection 
of  goods  because  his  public  wanted  them. 

Public  taste  changes  rapidly.  One  grocery  chain  noticed  that 
sales  of  black  tea  were  increasing.  Several  lines  of  green  tea 
were  immediately  dropped  and  the  black  tea  pushed.  The 
result  was  that  in  three  months  sales  of  black  tea  were  exactly 
doubled. 

Control  of  sales  lies  naturally  through  careful  records  and 
accounting,  but  the  increase  of  sales  comes  from  careful  watching 
of  these  records,  plus  sales  ideas.  When  these  sales  ideas  are 
embodied  in  merchandising  plans,  tested  in  advance  for  their 
practicality,  increased  sales  must  result. 


CHAPTER  VIII 
COMPETITION 

Outline 

The  question  of  the  independent  retailer. 
1.  The  permanence  of  his  position. 

(a)  Due  to 

1.  Various  forms  of  service. 

2.  Special  quality  goods. 

3.  Carrying   goods   for  which   there   is   small   demand    and 

consequently  low  rate  of  turnover. 

(b)  Caters  to  wealthy  trade  which  can  afford   to  pay  for  extra 

service. 

(c)  Impossibility  of  competing  with  chain  store  on  basis  of  price. 
Competition  of  chain  with  chain. 

1.  Impossibility  of  chain  monopoly. 

(a)  Deals  in  staples. 

1.  Sources  not  possible  to  corner. 

2.  Too  high  a  price  charged  by  one  chain  would  mean  develop- 

ment of  new  chains. 

2.  The  trend  towards  combination  of  chain  with  chain. 

(a)  Caused  by 

1.  Increased  economy  of  operation 
(a)  In  purchasing. 
(6)   In  decreased  overhead. 

(b)  Theory  of  growth. 

1.  The  larger  the  number  of  member  stores,  the  larger  the 
sales  per  unit  store. 
Private  versus  advertised  brands. 

1.  Chain  store  policy. 

(a)    Sell  what  the  public  demands. 
(6)  Simplify  stock  as  far  as  possible. 

2.  Value  of  private  brand  to  chain. 

(a)    Increased  profits. 

(6)  Advertising  value  to  store. 

(c)  Avoids  price  disputes  with  manufacturers. 

3.  Substitution. 

(a)  Small  extent  of  the  practice. 
(6)  Effect  of  "own  goods"  bonus. 

115 


116  CHAIN  STORES 

Bases  of  chain  store  competition. 

1.  Accounting. 

2.  Display. 

3.  Goodwill 

(a)  Of  public. 

(b)  Of  employees. 

4.  Location. 

5.  Management. 

6.  Personnel. 

7.  Price. 

8.  Purchasing. 

9.  Sales  policies. 
10.  Turnover. 


CHAPTER  VIII 
COMPETITION 

Competition  in  the  chain  store  field  is  definitely  divided  into 
two  sections,  first  that  between  the  chain  store  and  the  independ- 
ent store,  and  second,  that  between  the  chain  store  and  the  chain 
store.  The  first  type  of  competition  is  the  one  most  talked  of, 
while  the  second  is  the  one  that  matters  most  to  the  chain  organi- 
zation. A  chain  expert  on  locations  can  tell  after  an  analysis 
whether  the  community  can  support  one  of  his  stores,  and  the 
chain  store  will  be  sure  of  a  certain  amount  of  trade  based  on 
its  location  and  its  price  appeal. 

There  has  been  very  little  unpartisan  discussion  of  the  question 
of  chain  store  competition.  In  the  months  just  prior  to  the 
war  there  was  much  talk  and  some  outcry  against  chain  policies 
by  those  independents  who  were  unable  to  meet  chain  prices. 
When  the  war  brought  almost  universal  business  prosperity, 
money  was  made  so  easily  that  the  phenomenal  strides  made  by 
the  chains  in  expansion  programs  passed  almost  unnoticed.  The 
result  is  that  now  the  lines  are  fairly  drawn.  Each  town  and  city 
supports  a  certain  quota  of  chain  grocery  stores.  Other  chains 
are  close  behind.  These  chains  obtain  a  certain  percentage  of 
the  trade,  namely  that  percentage  which  is  willing  to  pay  cash  and 
do  without  deliveries.  Although  for  some  years  past  the  trend 
has  been  towards  "cash-and-carry"  chains,  it  is  quite  likely  that 
in  the  sharper  competition  of  the  future  some  chains  may  offer 
delivery  as  a  special  inducement.  Several  grocery  chains,  in 
fact,  are  offering  this  service  at  present. 

Many  independent  retailers  have  held  the  chain  in  such  dread 
that  they  have  been  willing  to  sell  out  on  the  mere  invasion  of 
the  chain  store  in  their  territory.  Others  are  so  narrow-minded 
as  to  close  their  eyes  or  turn  them  the  other  way  when  they  pass 
a  competing  chain  store.  This  deep-seated  antagonism  on  the 
part  of  the  independent  retailer  has  done  him  great  harm.  He 
has  indulged  his  natural  tendency  of  avoiding  pushing  branded 

117 


118  CHAIN  STORES 

goods  which  chain  stores  carry  in  order  to  avoid  the  almost 
inevitable  price  comparison. 

The  present  situation  is  that  the  chains  take  a  certain  class  of 
trade  and  the  independents  another,  namely,  the  class  of  trade 
with  money  which  prefers  the  personal  service  and  trouble  which 
only  the  independent  retailer  can  give.  In  return  this  class 
is  wilUng  to  pay  an  extra  amount. 

The  Position  of  the  Independent  Retailer. — Will  the  small 
retailer  ever  go  out  of  business? 

As  far  as  any  definite  answer  can  be  given,  it  is  "No!"  The 
small  retailer  can  obtain  a  hold  on  a  certain  section  of  the  public 
through  forms  of  service,  square  dealing,  courtesy,  handling  low- 
turnover  goods  in  small  demand  which  some  of  his  customers 
wish,  and  by  carrying  an  extra  good  line  of  something  else  as  an 
added  attraction. 

Many  people  who  go  to  a  grocery  store  do  not  like  to  ex- 
periment and  they  wish  someone  to  choose  for  them.  If  they 
know  a  certain  retailer  will  send  them  good  fresh  lettuce,  fruits, 
and  vegetables,  they  will  buy  there  and  pay  the  extra  price.  It 
is  the  same  point  which  nationally  advertised  goods  are  hammer- 
ing home  all  the  time.  "Don't  experiment!  Our  goods  are 
always  the  same.  The  other  fellow  may  be  all  right  but  you  can 
always  rely  on  us." 

One  grocery  chain  expert  who  has  studied  the  question  of 
independent  competition  has  noted  the  following  methods  by 
which  independent  chain  store  retailers  were  trying  to  hold  their 
business  and  even  increase  it: 

1.  Several  retailers  have  installed  a  window  bakery  and  feature  fresh 
baked  bread,  cakes,  etc. 

2.  Others  have  joined  a  corporation  which  enables  them  to  buy  groceries 
direct  and  save  the  jobbers'  profit. 

3.  A  few  have  opened  confectioneries  in  connection  with  their  grocery 
stores,  so  they  can  stay  open  Sundays. 

4.  A  few  have  combined  groceries  and  meat  markets  with  good  success. 

5.  Many  little  grocers  have  gone  into  market  houses,  where  a  small  stall 
can  be  rented  and  where  a  comfortable  retail  business  can  be  built  up 
without  much  risk  or  high  rent. 

It  is  well  worth  quoting  the  opinion  of  an  official  of  one  grocery 
chain  in  regard  to  the  status  of  the  independent  grocer. 

He   predicts  a   "war"   between  the  various   distributors  of 


COMPETITION  119 

foodstuffs,  because  the  cost  of  living  must  be  reduced,  and  that 
means  eliminating  the  bad  accounts,  the  inefficiency  of  small 
grocers,  and  the  other  unnecessary  expenses  incidental  to  the 
old-style  method  of  conducting  a  grocery  business. 

There  are  more  failures  in  the  grocery  business  every  year, 
according  to  this  authority,  than  in  any  other  line  of  business. 
Ne'er-do-wells  and  dreamers  who  have  a  few  hundred  dollars  to 
spare  start  a  grocery  store  and  settle  back  for  a  long  lifetime  of 
easy  profits.  Others  start  stores  and  let  their  wives  and  daugh- 
ters run  them  while  they  keep  on  with  their  regular  jobs.  Such 
'grocers'  are  easily  stampeded  into  buying  too  much,  they  have 
no  grounding  in  the  rudiments  of  business,  and  have  not  the 
stamina  to  carry  them  through  when  business  is  a  little  slow. 
Most  of  them  just  choose  the  grocery  business  because  'if  we 
can't  make  it  go,  we  can  eat  our  stock  ourselves. ' 

The  small  retailers,  like  the  poor,  will  be  always  with  us.  And  as 
long  as  we  have  small  retail  grocers,  we  shall  need  wholesale  grocers. 

Chain  Competition  with  Other  Chains. — There  has  been  much 
debate,  more  in  the  past  than  at  present,  about  the  possibility 
of  gigantic  chains  monopolizing  the  retail  trade  of  the  country. 
The  United  Retail  Stores  Company  is  frequently  quoted  as  an 
example. 

The  best  safeguard  of  the  public  against  high  prices  is  in  most 
cases  the  chain.  In  communities  where  the  local  dealers  fre- 
quently charged  all  the  traffic  could  bear,  the  advent  of  the 
chain  store  revolutionized  prices.  When  two  chains  or  more 
share  the  territory  in  a  city  and  cover  the  same  ground,  there  is 
a  certainty  of  low  prices.  For  example,  the  chain  grocery  busi- 
ness is  not  in  one  set  of  hands.  New  chains  are  constantly 
springing  up  and  taking  their  place  by  the  side  of  old  ones. 

The  most  potent  argument  against  the  chain  store's  being 
able  to  monopolize  the  retail  trade  is  that  the  average  chain 
deals  in  products  made  from  the  most  ordinary  materials,  things 
which  no  one  could  possibly  corner.  In  the  grocery  chain,  for 
example,  what  individual  could  hope  to  control  the  supply  of 
sugar,  coffee,  beans,  tea,  cocoa,  wheat,  corn,  etc.?  The  moment 
a  chain  tried  to  charge  more  than  a  fair  price,  the  field  would  be 
flooded  with  retailers  anxious  to  undersell  him. 

It  is  a  strange  fact,  but  many  times  corroborated,  that  if. 


120  CHAIN  STORES 

by  the  side  of  an  old-established  chain  branch,  a  new  branch 
of  another  chain  comes,  the  old  chain  store  shows  no  diminution 
in  sales,  perhaps  even  an  increase.  In  the  majority  of  cases, 
the  new  branch  builds  up  a  satisfactory  trade  for  itself.  It 
is  not  recognized  by  many  retailers  that  the  coming  of  a  chain 
store  will  mean  increased  business  for  the  whole  locality.  People 
wiU  buy  in  suburbs  who  had  previously  purchased  in  town. 
The  price  appeal  of  the  chain  store  is  a  universal  attraction. 

Private  Brands. — Just  as  unfair  competition,  secret  discounts, 
etc.,  have  been  the  slogans  of  the  independent  retailers  in  their 
denunciation  of  chain  stores,  the  cry  of  the  manufacturer  has  been 
against  the  private  brand  of  the  chain  store. 

It  was  found  very  early  in  chain  store  development  that  it 
was  possible  to  make  products  and  put  them  on  sale  in  the  chain's 
own  stores  at  a  much  lower  price  than  a  nationally  advertised, 
well-knOwn  product  could  be  put  out.  These  private  brands 
became  a  bone  of  contention  and  remained  so  for  many  years. 
Both  sides  went  too  far  and  lost  money  by  it.  At  one  time, 
Mr.  Hartford,  the  founder  of  the  Great  Atlantic  &  Pacific  Tea 
Co.,  leaned  heavily  to  private  brands,  but  his  keen  business  sense 
finally  taught  him  that  the  public  will  eventually  have  what  it 
wants,  and  if  it  prefers  nationally-advertised  goods,  it  is  more 
profitable  to  sell  them  than  to  allow  the  customer  to  go  elsewhere. 
As  far  as  substitution  is  concerned,  the  chain  store  clerk  or 
manager  has  no  time  to  spend  in  pushing  private  brands.  In 
fact,  he  is  compelled  to  spend  nearly  all  his  time  in  disposing  of 
articles  called  for  by  customers.  The  manufacturer  of  branded 
goods  can  be  sure,  at  this  date,  of  having  his  goods  stocked, 
provided  he  creates  a  large  enough  demand  for  them. 

There  is  frequently  a  problem  to  meet  in  the  grocery  business 
when  the  policy  is  to  simplify  the  stock  yet  at  the  same  time 
satisfy  the  majority.  This  is  the  frequent  cause  of  a  cry  of 
substitution  on  the  part  of  the  manufacturer.  The  chain  store 
side  of  the  question  is  rarely  heard.  Here  is  what  one  chain 
store  has  to  say: 

"We  don't  handle  Gold  Dust,  Grandma's  Washing  Powder,  Rub-No- 
More  and  a  dozen  other  soap  powders.  Instead  of  these,  we  standardize 
on  Sea  Foam  soap  powder,  buy  it  in  car-loads  and  push  it  hard.  If  a 
woman  comes  into  one  of  our  stores  and  asks  for  Gold  Dust,  the  clerk  (if 


COMPETITION  121 

he  is  any  good)  will  tell  her  why  we  do  not  handle  it  and  that  Sea  Foam 
will  do  anything  that  any  other  ordinary  soap  powder  will  do. 
Maybe  he  sells  her  a  five  cent  package  of  Sea  Foam  and,  if  she  likes  it,  we 
have  made  a  new  customer.  "  Frequently,  of  course,  she  will  not  listen 
or  refuses  to  try  a  substitute.  But  a  chain  store  has  to  cater  to  the 
majority,  and  we  have  so  many  advantages  in  simplifying  our  stock 
that  we  do  not  worry  about  the  occasional  customer  that  wants  some- 
thing else. 

"Most  retail  and  wholesale  grocers  get  loaded  up  with  a  lot  of  dead 
goods  that  nobody  wants.  We  take  on  new  items,  now  and  then,  but 
generally  drop  an  old  item  when  we  do.  Recently,  at  one  of  our 
managers'  meetings,  there  was  considerable  desire  shown  for  us  to 
stock  a  certain  baking  powder,  an  advertising  campaign  being  then  in 
full  force  on  this  item.  We  called  for  a  vote  and  found  that  more  stores 
wanted  Rumford's  (which  we  already  handled)  than  this  other  brand. 
We  chose,  therefore  to  stay  with  Rumford.  We  do  not  wish  to  divide 
our  business  between  too  many  items,  because  that  means  we  should 
have  to  buy  in  lesser  quantities,  lose  our  quantity  discounts,  and  also 
not  be  able  to  turn  over  our  stock  so  frequently." 

The  main  reasons  why  chain  stores  push  private  brands  of 
their  own  are: 

1.  Possibilities  of  making  extra  profits. 

2.  The  advertising  value  of  the  brand  to  the  store. 

3.  Avoidance  of  trouble  with  manufacturers  on  price  disputes. 

Naturally,  the  first  consideration  carries  the  most  weight 
but  chain  stores  realize  that  sales  resistance  eats  up  profits 
and  they  will  never  succeed  in  trying  to  stand  out  against  an 
overwhelmingly  strong  popular  brand. 

The  manufacturers'  private  brands  are  nationally  advertised 
and  must  be  so  if  the  chain  stores  are  to  stock  them.  But  the 
chain's  own  private  brands  as  a  rule  are  unadvertised  in  any 
way  other  than  by  display,  and  by  price  comparisons  indicated 
by  means  of  tags.  The  United  Drug  Co.  has  advertised  its 
private  brands  in  many  cases.  It  advertises  nationally,  locally, 
and  by  means  of  dealer  helps.  It  has  made  its  trade  name 
*'  Rexall"  known  all  over  the  country.  Ordinarily,  this  company 
pursues  a  policy  of  concentrating  on  one  brand  and  pushing  it. 

Substitution. — What  is  meant  by  substitution?  There  is  a 
difference  of  opinion  on  this  point.  Some  maintain  that  it  is 
limited  to  wilful  delivery  of  one  package  in  place  of  another. 


122  CHAIN  STORES 

Others  contend  that  it  is  the  sales  effort  of  the  clerk  to  induce  the 
customer  to  "take  something  just  as  good."  The  chain  store 
organizations  claimed  that  it  was  a  fundamental  rule  never  to 
substitute,  but  always  to  give  the  customer  what  he  wanted  if 
it  was,  in  stock  and  never  attempt  a  sale  until  after  the  customer 
had  made  his  choice.  The  manufacturers  claimed  that  the  bonus 
which  many  chains  give  to  their  clerks  as  a  reward  for  selhng 
their  own  goods  made  it  impossible  for  the  chain  to  stop  substi- 
tution even  though  it  desired  to  do  so. 

In  view  of  this  difference  of  opinion,  the  report  of  an  investi- 
gation of  the  Liggett  stores  in  Greater  New  York,  made  by  J.  A. 
Murphy,  representative  of  Printers'  Ink,  and  by  the  president 
of  a  large  pharmaceutical  company  which  manufactures  and  dis- 
tributes some  2,000  items,  is  informative.  Report  had  come  from 
checkers  that  the  Liggett  stores  were  flagrantly  practicing  sub- 
stitution, and,  in  the  case  of  the  company  in  question,  substitution 
was  fairly  easy  because  the  company  had  stopped  advertising. 

All  but  five  or  six  of  the  72  Liggett  stores  on  the  list  were 
covered.  Mr.  Murphy  asked  either  for  Baume  Analgesique 
Bengu^  or  Scott's  Emulsion.  To  make  matters  doubly  sure, 
he  often  wrote  the  name  of  the  former  product  on  a  slip  of  paper. 
The  president  of  the  pharmaceutical  company  asked  for  his  own 
products.     Both  men  pretended  not  to  know  each  other. 

In  the  first  half-dozen  stores  requests  were  made  in  a  brisk 
and  businesslike  manner.  There  was  absolutely  no  attempt  to 
substitute  or  to  sell  additional  merchandise. 

In  the  next  group  of  stores  visited,  the  requests  were  put 
in  a  less  positive  fashion,  asomething  like  the  following:  "A 
small  bottle  of  Scott's  Emulsion.  Scott's  is  the  best,  isn't  it?" 
The  answers  varied  from  "It  is  a  very  good  brand,"  "It  is  the 
best  known,"  to  "We  carry  several." 

The  president  finally  asked  a  girl  why  she  didn't  take  advan- 
tage of  such  a  good  chance  to  push  the  brands  of  the  company. 
She  said  it  was  against  the  rules  of  the  company,  and  customers 
must  be  given  what  they  ask  for. 

The  conclusion  is  that  the  only  way  for  the  manufacturer  to 
sell  his  goods  in  chain  stores  in  competition  with  the  private 
brands  of  the  chain  organization  is  to  get  the  public  to  ask  for 
them.     The  chain  store  will  sell  just  what  its  customers  want. 


COMPETITION 


123 


Combination. — One  problem  remains  for  discussion  in  connec- 
tion with  competition  between  various  chains,  namely,  the 
tendency  of  the  larger  chain  to  absorb  the  smaller  chain.  This  is, 
as  the  ''Principles  of  Marketing,"  by  Ivey,  points  out,  a  simple 
case  of  cause  and  effect.  The  greater  the  number  of  stores,  the 
greater  the  outlets.  The  greater  the  outlets,  the  more  competi- 
tion in  purchasing.  To  be  able  to  purchase  in  large  quantities  a 
chain  must  have  a  certain  number  of  outlets,  and  it  may  prove 
far  cheaper  to  purchase  or  affiliate  with  another  chain  already  in 
operation  and  in  this  way  at  one  moment  secure  this  purchasing 
advantage. 

In  addition,  to  function  properly,  a  chain  must  have  a  certain 
size.  It  enables  much  more  efficient  standardization  of  routine 
management  and  expenses. 

Lastly,  there  has  been  an  unconscious  profiting  by  one  of  the 
chain  store  principles  of  growth.  The  larger  the  number  of 
member  stores,  the  larger  the  sales  per  unit  store.  We  are 
discussing  here  the  reasons  for  combination,  and  this  is  the  most 
potent  one.  To  go  back  to  our  old  illustration,  the  Woolworth 
stores,  which  are  not  affected  greatly  by  prosperity  and  depres- 
sion, we  find  the  following  facts. 

F.  W.  Woolworth  Company 


Number  of  stores 

Total  sales 

Sales  per  store 

1911 

596 

%  52,616,123 

$  88,282 

1912 

631 

60,557,767 

95,939 

1913 

684 

66,228,072 

96,824 

1914 

737 

69,619,669 

94,340 

1915 

805 

75,995,774 

94,404 

1916 

920 

87,089,270 

94,662 

1917 

1,000 

98,102,857 

98 , 102 

1918 

1,039 

107,179,411 

103,156 

1919 

1,081 

119,496,107 

110,542 

1920 

1,111 

140,918,981 

126,800 

1921 

1 .  143 

147,644,999 

129,181 

Nineteen  hundred  and  fourteen  was  the  only  year  to  show  a 
recession  over  figures  of  sales  per  store  for  the  preceding  year, 
and  this  can  perhaps  be  ascribed  to  the  outbreak  of  the  war  and 


124  CHAIN  STORES 

the  immediate  depressing  effect  on  every  type  of  mercantile 
activity. 

In  1911,  sales  per  store  were  $88,282,  and  in  1920  sales  per 
store  were  $126,800,  a  difference  of  $38,518  for  the  average 
store.  The  Kresge  stores,  by  raising  their  price  limits,  were 
able  to  increase  average  sales  per  store  from  $150,671  in  1915 
to  $271,139  in  1920,  an  increase  of  over  $120,000  in  average 
sales  per  store,  with  an  increase  of  fifty  store  units. 

This  principle  of  increased  sales  with  increased  number  of 
units  applies  elsewhere  than  in  the  five  and  ten  cent  chain  field. 
Take,  for  example,  the  Great  Atlantic  &  Pacific  Tea  Co.  which 
possesses  the  largest  number  of  retail  stores  under  its  own  man- 
agement. Back  in  1915,  it  had  1,726  stores  and  gross  sales  for 
the  year  were  $44,441,000.  In  1919  there  were  4,246  stores  and 
gross  sales  of  $194,646,000.  In  1915  sales  per  unit  store  were  in 
the  neighborhood  of  $25,000  and  in  1919  were  over  $45,000,  an 
increase  in  unit  sales  of  over  $20,000. 

Thus  there  is  a  logical  incentive  to  combination  because  of 
the  increased  economies  obtained  thereby,  and  the  increased 
volume  of  sales  per  unit  in  operation. 

The  Bases  of  Chain  Store  Competition. — Every  successful 
line  of  business  can  trace  its  success  to  certain  policies,  to  the 
protection  of  patents  perhaps,  or  the  protection  of  tariffs.  The 
success  of  some  companies  may  depend  on  the  personality  of 
the  executive.  The  reasons  for  chain  store  superiority  lie  not 
so  much  in  the  application  of  one  policy  as  in  the  application  of 
the  consensus  of  many  policies. 

In  order  to  review  some  of  the  main  reasons  which  make  it 
extremely  difficult  for  an  independent  store  to  maintain  itself 
in  competition  with  a  chain  store,  and  which  are  the  bases  for 
the  very  keen  competition  in  price,  service,  etc.  of  one  chain  store 
system  with  another,  the  following  ten  headings  are  arranged 
alphabetically  without  any  attempt  to  classify  them  according 
to  their  importance. 

1.  Accounting  6.  Personnel 

2.  Display  7.  Price 

3.  Goodwill  8.  Purchasing 

4.  Location  9.  Sales  policy 

5.  Management  10.  Turnover 


COMPETITION  125 

1.  Accounting.  Many  retail  stores  keep  no  accounts  and  some 
keep  partial  accounts;  but  very  few  keep  full  accounts.  The 
whole  efficiency  of  the  chain  store  organization  is  based  on  careful 
accounting.  Some  companies  have  spent  years  in  standardizing 
and  rearranging  their  systems  of  accounts  to  make  them  more 
perfect. 

A  proper  system  of  accounting  allows  the  chain  executive  to 
know  at  any  moment  the  state  of  affairs  in  his  business  as  a  whole 
and  in  any  particular  store.  Accounting  is  a  necessity  to  a  chain 
organization  but  to  the  independent  retailer  is  a  luxury  which 
he  feels  unable  to  afford.  On  this  head  the  chain  has  marked 
advantages. 

2.  Display.  A  chain  organization  sells  its  goods  through  dis- 
play which,  it  has  found,  is  the  easiest  and  least  expensive  form 
of  advertising.  Each  member  store  is  in  itself  an  individual  and 
typical  display.  Each  interior  helps  to  carry  out  the  standard 
plan.  The  window  trims  are  arranged  by  experts  who  know  how 
to  design  displays  that  will  make  sales. 

Lastly,  the  goods  are  shown  in  the  best  possible  fashion,  with 
prices  tagged  plainly.  Contrasted  with  the  independent  store, 
the  comparison  is  all  in  favor  of  the  chain.  When  compared  with 
each  other,  the  displays  of  two  chains  dealing  in  the  same  line  of 
goods  often  show  little  difference.  But  this  is  a  very  real  item  in 
competition,  and  one  in  which  the  independent  retailer  can  profit- 
ably take  lessons  from  the  chain. 

3.  Goodwill.  Can  a  chain  store  exercise  so  strong  an  appeal  to 
its  customers  that  they  will  return  regularly?  Some  say  it  can, 
and  some  say  it  cannot.  A  great  deal  depends  on  the  location 
and  the  character  of  the  clientele  passing  the  store.  More 
depends  on  the  personality  of  the  store  as  interpreted  by  the  sales 
force  and  the  general  appearance  of  the  premises. 

The  great  value  of  goodwill  lies  in  the  regular  customer. 
This  ability  to  get  and  hold  regular  trade  is  what  piles  up  sales 
in  a  store.  It  has  normally  been  considered  that  the  independent 
retailer  has  a  monopoly  on  this  goodwill,  that  by  his  services  and 
his  attentions  he  can  secure  and  hold  a  certain  percentage  of 
trade.  Experience  has  proved  and  is  proving  that  the  manager 
of  the  chain  store  has  at  his  disposal  exactly  the  same  means  of 
pleasing  the  customer.     For  example,  one  of  the  large  grocery 


126  CHAIN  STORES 

chains  has  just  installed  a  delivery  service  delivering  for  customers 
on  the  payment  of  ten  cents  extra.  Thus,  the  customer  can 
very  often  make  her  purchases  at  the  chain  store,  have  them 
delivered,  and  still  find  her  bill  less  than  if  she  had  gone  to  the 
independent  store. 

4.  Location.  "There  is  a  right  place  and  a  wrong  place  to 
locate  a  store,"  said  F.  W.  Woolworth.  "Put  your  stores  where 
the  dollars  stick  out,"  says  B.  H.  Kroger,  president  of  the 
Kroger  Grocery  and  Baking  Company.  The  ability  of  the  chain 
organizations  to  pick  and  choose  the  spots  which  make  failure 
next  to  impossible  has  been  one  of  their  strongest  assets  in  retail 
competition.  It  is  frequently  possible  to  see  three  or  four  chain 
stores  in  the  same  block,  all  dealing  in  groceries  and  all  appar- 
ently successful.  The  independent  retailer  as  a  rule  does  not 
know  how  to  locate.  He  may  even  shun  the  good  locations 
because  of  the  proximity  of  a  chain  store,  anxious  as  he  is  to 
avoid  all  price  comparisons. 

5.  Management.  Chain  stores  have  brains  to  direct  them. 
This  naturally  gives  them  an  enormous  advantage.  They  can 
afford  to  pay  an  executive  to  see  that  no  mistakes  are  made  in 
policy.     The  independent  retailer  has  to  find  this  out  for  himself. 

Good  management  is  more  than  seeing  the  stores  open  at  eight 
and  close  at  six.  It  is  more  than  seeing  that  all  links  are  func- 
tioning properly  and  that  there  is  no  friction.  Good  management 
means  careful  business  prediction,  the  faculty  of  seeing  ahead. 
It  means  a  thorough  grasp  of  business  principles.  Business  is  no 
longer  an  empirical  enterprise  which  anyone  with  a  small  amount 
of  money  may  enter.  It  has  become  a  science,  and  each  phase  of 
business  overlaps  another  phase.  Thus  the  independent  retailer, 
encompassed  as  he  is  in  a  very  narrow  sphere,  is  at  a  marked 
disadvantage. 

6.  Personnel.  The  store  managers  and  the  clerks  have  always 
been  cited  as  the  chain  organization's  weakest  point,  and  prob- 
ably this  is  true.  Human  nature  is  very  difficult  to  standardize, 
especially  at  a  distance.  It  is  even  more  difficult  to  keep  it 
interested  unless  there  is  some  strong  incentive.  Personal  profit 
inspires  the  interest  in  the  independent  retailer.  And  the  chain 
has  borrowed  this  incentive  for  its  own  use.  It  adds  a  security 
against  failure  which  the  independent  owner  can  never  feel. 


COMPETITION  127 

If  the  personnel  is  the  chain's  weakest  point,  everything 
that  can  be  done  towards  making  it  as  strong  as  the  rest  of  the 
organization  is  being  tried  out  in  different  ways  by  different 
chains.  It  seems  generally  agreed  that  the  manager  and  possi- 
bly the  subordinate  clerk  should  participate  in  earnings.  That 
is,  a  premium  is  placed  upon  the  good  salesmanship  of  the  clerk 
and  the  good  management  of  the  store  manager. 

7.  Price.  The  independent  store  cannot  sell  at  the  same  price 
as  the  chain  store.  For  many  people,  this  constitutes  the  strong- 
est reason  for  the  strength  of  the  chain.  Why  should  people  pay 
more  at  the  individual  store  when  they  can  get  the  same  thing 
for  less  money  next  door? 

As  time  goes  on,  this  question  of  price  will  grow  even  more 
important  than  it  is  now.  When  competition  between  chains 
becomes  keener,  as  it  inevitably  will,  practically  the  ultimate 
point  of  differentiation  will  be  in  price.  The  costs  of  two  chains 
of  approximately  the  same  size  will  vary  little.  Whatever 
economies  good  management  can  make  will  be  reflected  in  the 
price. 

8.  Purchasing.  The  economies  of  purchasing  are  all  on  the  side 
of  the  chain.  The  history  of  the  chain  movement  has  been  one 
long  rebellion  against  the  middleman's  discount  and  an  effort  to 
buy  nearer  the  source.  After  a  long  struggle,  the  combat  seems 
to  be  settled  and  most  manufacturers  agree  to  sell  the  chains 
direct.     They  cannot  afford  not  to  do  so. 

The  independent  retailer  cannot,  as  a  rule,  buy  in  quantities. 
He  has  no  place  to  store  away  surplus  supplies,  and,  even  if  he 
did  have,  they  would  be  too  old  by  the  time  he  was  ready  to  sell 
them.  The  jobber,  therefore,  is  a  necessity  as  long  as  the  small 
retailer  lasts. 

Savings  in  purchases  can  generally  be  passed  along  to  the 
public.  The  quantity  discount  is  the  independent's  chief  reason 
for  being  unable  to  meet  chain  store  prices. 

9.  Sales  'policies.  The  chain  organization  picks  the  products 
that  will  sell  themselves  rather  than  those  which  have  to  be  sold. 
It  devotes  itself  to  a  few  lines  of  goods,  rather  than  to  a  great 
many.  The  goods  which  are  sold  are  generally  staple  articles. 
Every  article  must  prove  itself  before  being  allowed  a  permanent 
place  on  the  shelves. 


128  CHAIN  STORES 

10.  Turnover.  The  chain  store  has  found  that  profits  from 
selling  are  derived  from  turning  goods  quickly  at  a  low  profit 
rather  than  seldom  at  a  high  profit.  The  independent  retailer  in 
many  cases  has  not  discovered  this.  It  is,  or  should  be,  a  rule  in 
the  chain  store  that  no  goods  should  be  allowed  to  stay  on  the 
shelves  beyond  a  certain  time,  varying,  of  course,  with  the  nature 
of  the  product.  If  they  do  not  sell,  they  must  be  moved  at  any 
price.  Perhaps  some  other  store  can  sell  them.  If  not,  reduce 
the  price  until  they  go. 

Conclusions. — All  the  phases  of  competition  have  not  been 
exhausted  in  this  chapter.  Only  those  have  been  discussed 
which  have  seemed  to  refer  most  specifically  to  the  chain  store  and 
its  sales  problems.  The  point  which  appears  from  an  analysis 
of  the  essentials  of  chain  store  competition  is  that  there  is  nothing 
phenomenal  about  it.  It  is,  in  the  last  analysis,  nothing  more 
than  the  scientific  application  of  business  principles  to  the  prob- 
lems of  retailing.  The  remarkable  fact  is  that  the  rise  of  the 
chain  store  came  so  late.  The  extent  and  rapidity  of  its  growth 
have  shown  the  economic  need  which  existed  in  the  community 
at  large. 

The  analysis  of  competition  is  both  an  executive  and  a  local 
function.  The  executive  must  measure  the  strength  of  his  com- 
petition collectively  in  the  territory  in  which  his  chain  operates. 
The  local  manager  must  analyze  the  character  of  the  particular 
specific  competition  which  he  must  confront.  In  every  case  the 
result  aimed  at  and,  in  the  majority  of  cases  attained  by  the  chain 
store,  is  "The  public  be  pleased."  The  chain  store  exercises  a 
retailing  function  and  its  success  must  be  measured  finally  by  the 
degree  of  public  approbation  of  its  executive  and  its  merchandising 
policies. 


CHAPTER  IX 
PRICING  AND  TURNOVER 

Outline 

Theory  of  pricing. 

1.  Fallacy  of  old  theory  of  charging  all  product  will  bring. 

2.  Proper  pricing. 

(a)  Determination  of  by 

1.  Purchase  price  paid  by  chain. 

2.  Share  of  overhead  expense. 

3.  Share  of  selling  expense. 
(6)   Possible  to  obtain  by 

1.  Economic  purchasing. 

2.  Minimum  overhead  expense. 

3.  Efficient  retail  store  management  and  accounting. 

3.  Methods  of  pricing  in  vogue. 

(a)  Cost  of  goods  plus  share  of  overhead  and  selling  expense  plus 

necessary  percentage  of  profit. 

(b)  Price  maintained  on  main  stock  but  loss  leaders  offered. 

(c)  Cut  prices. 
Price  range. 

1.  Normally  low. 

2.  Policy  of  decreasing  unit  size  in  periods  of  increasing  prices. 

3.  Prices  standardized  throughout  chain. 

(a)   Exceptions. 

4.  Putting  price  changes  into  effect. 

(a)   Regular  intervals  or  immediately. 
Principles  of  turnover. 

1.  Keep  stock  turning. 

2.  Keep  every  line  turning. 

3.  Make  profit  on  every  line. 
Increasing  turnover. 

1.  Increasing  rate  of  sales  while  stock  remains  same. 

2.  Price  cutting. 

3.  Shifting  goods. 

Rate  of  turnover  necessary, 
1.  Dependent  on 

(a)  Keeping  quality  of  product. 
(6)   Capacity  of  store, 
(c)    Price  at  which  sold. 
9  121) 


130  CHAIN  STORES 

2.  Setting  turnover  quota  for  managers. 

(a)  Supplying  managers  with  past  records  in  their  stores. 

(b)  Importance  of  turnover  in 

1.  Seasonal  goods. 

2.  Style  hues. 
Securing  adequate  turnover. 

1.  Careful  purchasing  of  goods. 

2.  Efficient  merchandising  policy. 

3.  Cooperation  of  the  personnel. 

4.  Careful  inventory  system. 


CHAPTER  IX 
PRICING  AND  TURNOVER 

Profits  in  chain  store  retailing  are  largely  determined  by  the 
selling  price  and  the  rate  of  turnover.  In  the  careful  adjustment 
of  these  two  factors  lies  one  of  the  secrets  of  chain  store  success. 

The  price  at  which  a  product  can  be  sold  is  or  should  be 
determined  automatically  by 

1.  The  purchase  price  paid  by  the  chain. 

2.  The  share  of  overhead  expense. 

3.  The  share  of  selHng  expense. 

It  is  evident,  therefore,  that  a  low  selling  price  can  be  reached 
only  by 

1.  Economical  purchasing. 

2.  Minimum  overhead  expenses. 

3.  Efficient  retail  store  management  and  accounting. 

But  the  rate  of  turnover  exercises  a  modifying  influence  on 
all  the  above  factors.  By  turnover  is  meant  stock  turnover,  that 
is,  the  number  of  times  the  money  invested  in  merchandise  is 
liquidated  and  reinvested  during  the  term  of  a  year.  Obviously, 
the  larger  the  turnover,  the  more  profits,  and  consequently 
the  lower  the  selling  price,  which  can  be  set. 

A  large  turnover  is  secured  by : 

1.  Careful  purchasing  of  goods  and  products  that  will  sell  readily. 

2.  An  efficient  merchandising  policy. 

3.  The  cooperation  of  the  personnel. 

4.  A  careful  inventory  system. 

A  large  turnover,  however,  will  not  bring  large  profits  unless 
the  selling  price  is  high  enough  to  carry  the  overhead  and  other 
charges  against  it.  Thus,  in  a  cut-price  war,  an  enormous  turn- 
over may  bring  enormous  losses.     But  it  is  obvious  that,  the 

131 


132  CHAIN  STORES 

larger  the  turnover,  the  less  profit  it  is  necessary  to  make  on  each 
sale  to  obtain  an  aggregate  profit  satisfactory  to  everyone. 

The  Theory  of  Pricing. — In  the  old  days,  and  even  now  among 
many  retailers,  the  custom  is  to  mark  goods  at  whatever  prices  it 
is  thought  they  will  bring.  Probably  everyone  has  gone  into  a 
store,  priced  an  article,  found  it  too  high,  and  been  on  the  point 
of  leaving  the  store,  when  the  proprietor  said:  "Well,  I  guess  I 
can  let  you  have  it  for  a  little  less."  Charging  the  public  what 
it  will  pay,  or,  in  other  words,  profiteering,  is  a  crime  that  can  be 
laid  at  the  doors  of  very  few  chain  stores.  The  chain  store  policy 
is  to  deal  only  in  those  products  which  can  be  sold  at  a  profit,  no 
matter  how  small.  Loss  leaders,  which  in  the  majority  of  cases 
are  not  losses,  result  in  increased  profits  because  they  increase 
turnover. 

R.  C.  Swanton,  General  Auditor  of  the  Winchester  Repeating 
Arms  Co  ,  has  explained  the  theory  of  marking  up  goods  from 
cost  price  so  plainly  that  the  following  is  paraphrased  from  an 
article  of  his  in  the  Winchester  Herald,  the  house  organ  of  that 
company. 

Mark-up,  he  says,  is  the  amount  added  to  the  cost  of  mer- 
chandise to  cover  operating  expenses  and  a  profit.  It  is  con- 
trolled in  its  upward  trend  by  competition,  and  may  be  controlled 
in  its  downward  trend  by  the  use  of  accounting  figures.  The 
expense  of  doing  business,  which  is  the  largest  outlay  of  money 
outside  of  the  actual  purchase  cost  of  the  goods,  must  be  covered 
in  setting  the  sales  price,  before  a  profit  can  be  taken.  Capi- 
tal invested  in  stock  is  entitled  to  a  net  profit  on  every  sales 
transaction. 

Figure  13  is  an  analysis  of  departmental  reports.  The  average 
mark-up  for  the  total  sales  of  all  departments,  to  obtain  an  aver- 
age net  profit  of  13  per  cent.,  must  be  56.7  per  cent.,  while  the 
average  mark-up  to  obtain  a  net  profit  of  9.6  per  cent,  on  the 
Tool  Department  must  be  47.4  per  cent.  This  does  not  mean 
that  each  item  in  the  tool  classification  is  so  marked-up.  Some 
may  be  marked  up  75  per  cent,  but  a  study  of  this  statement 
shows  that  if  the  merchant  marked  up  at  this  lower  figure  he 
would  sustain  a  loss  on  each  article,  and  that  he  would  sustain  a 
loss  on  each  sale  marked  up  at  less  than  33  per  cent.,  because  the 
ratio  of  the  store's  operating  expense  is  higher  than  the  mark-up; 


PRICING  AND  TURNOVER 


133 


134  CHAIN  STORES 

therefore,  if  the  merchant  decides,  and  trade  conditions  are 
favorable,  to  take  a  net  profit  of  ten  per  cent.,  his  safe  low  limit 
of  mark-up  on  all  merchandise  in  this  class  would  be  47  per  cent. 
Mark-up  is  based  on  cost  of  goods,  and  gross  profit  on  returns 
frorn  sales.  Gross  profit  is  the  difference  between  cost  of  goods 
sold  and  the  mark-up  price  obtained.  This  amount,  in  ratio  to 
the  sales  price,  gives  the  gross  profit  percentage.  Noting  the 
illustration.  Goods  in  the  Tool  Department  took  an  average 
mark-up  of  47  per  cent,  and  obtained  an  average  gross  profit  of 
32  per  cent.  For  instance,  let  us  assume  an  item  in  the  tool 
classification : 

Cost  to  the  merchant $1 .  00 

Plus 47  %  mark-up 

Equals $1 .  47  sales  price 

The  difference  between  the  cost  and  the  sales  price  is  $.47 
which,  divided  by  the  sales  price  of  $1.47,  leaves  a  gross  profit  of 
32  per  cent.  Assuming  that  the  overhead  expense  of  making  a 
sale  is  21  per  cent,  this  deducted  from  the  gross  profit  leaves  a 
net  profit,  or  an  income  on  capital  invested  in  the  article,  of 
11  per  cent,  on  the  sale.  Much  trouble  is  encountered  because  of 
the  confusing  of  mark-up  with  gross  profits.  Remember  that 
gross  profit  is  based  on  sales;  mark-up  is  based  on  and  added  to 
cost. 

Methods  of  Pricing. — Goods  may  be  charged  to  retail  stores  at 
either  wholesale  or  retail  prices.  In  the  great  majority  of  cases 
goods  are  charged  at  retail  so  that  the  member  store  will  have 
but  one  price  to  consider,  and  that  price  the  one  at  which  the 
goods  are  to  be  sold  to  customers.  It  also  simplifies  accounting 
methods. 

Where  a  chain  conducts  a  wholesale  business  or  sells  to  agen- 
cies, it  frequently  bills  goods  to  its  own  stores  at  wholesale 
prices.  If  they  were  to  bill  their  goods  to  their  own  store  at 
retail  prices  and  to  agencies  at  wholesale  prices,  it  would  mean 
keeping  up  two   systems,   and   would   cause   much   confusion. 

There  are  several  methods  of  retail  pricing  in  vogue : 

1.  The  logical  and  ordinary  method  of  fixing  the  price  of  all  goods  at  a 
certain  percentage  over  the  purchase  price  and  the  overhead  and  selling 
expenses. 


PRICING  AND  TURNOVER  135 

2.  Maintaining  prices  according  to  the  first  system,  but  each  week  runninK 
a  list  of  loss  leaders  at  cost  or  fractional  profit. 

3.  Selling  at  competitors'  prices,  or  below  them,  a  practice  which  leads  to 
cut  price  wars  and  elimination  of  the  weakest  competitors. 


Where  operating  and  selling  expenses  are  standardized  down 
to  the  last  degree,  there  is  not  much  difference  in  the  price  at 
which  the  various  chains  can  afford  to  sell  the  majority  of  their 
products.  Some  merchandising  expedient,  some  quirk  of 
efficiency,  may  pull  them  ahead  for  a  moment,  but  the  rest  of  the 
field  gradually  draws  abreast  again,  since  chain  competition  is 
essentially  a  competition  of  price. 

The  Price  Range. — The  chain  stores,  as  has  been  mentioned 
before,  generally  concentrate  on  staple,  low,  and  medium- 
priced  merchandise,  because  it  is  in  this  class  of  products  that 
the  largest  turnover  is  obtainable,  and  these  products  are  sold 
to  the  class  of  people  to  whom  the  price  of  the  article  makes  a 
great  deal  of  difference. 

The  war  brought  about  very  interesting  conditions  in  the 
chain  store  field.  Before  that  time,  when  biscuits,  chewing  gum, 
cigars,  hats,  shirts,  and  innumerable  articles  could  be  featured 
at  a  standard  price,  it  gave  chain  shops  something  upon  which  to 
build  a  reputation.  A  dollar  watch  or  a  dollar  shirt  or  a  five- 
cent  cigar  gave  the  customer  something  to  remember. 

In  the  short  history  of  the  chain  store  movement,  the  war  was 
the  first  major  economic  upheaval  which  upset  this  standard 
price.  Nowhere  was  this  more  evident  than  in  the  five  and  ten- 
cent  store  field.  For  some  time  previous  to  the  war,  the  merchan- 
dise assortment  of  the  five-  and  ten-cent  stores  had  begun  to 
narrow.  The  days  when  Butler  Brothers  had  been  able  to  offer 
more  than  120,000  separate  articles  to  be  retailed  at  five-  and  ten- 
cents  were  past.  When  the  war  came,  it  caused  a  break-away 
from  the  old,  five,  ten,  twenty-five  cent  limit.  Most  variety 
chains  found  they  could  not  offer  a  large  enough  assortment  to  get 
the  required  turnover.  Woolworth  clung  to  the  old  policy  by 
decreasing  the  units.  The  size  was  made  smaller,  less  candy  was 
sold  for  ten  cents,  matches  which  had  been  one  cent  a  box  were 
five  cents;  things  were  sold  separately,  one  stocking  for  ten  cents, 
the  pail  ten  cents  and  the  cover  ten.     To  the  amazement  of  its 


136  CHAIN  STORES 

competitors  and  the  public,  the  Woolworth  chain  was  able  to 
come  through  without  changing  its  traditional  ten-cent  limit. 

Those  variety  chains  which  have  broken  away  show  as  yet  no 
tendency  to  revert  to  the  old  system.  While  keeping  their 
lower-priced  lines  as  intact  as  possible,  variety  of  stock  was 
increased.  It  was  known  that  a  large  part  of  any  department 
store's  sales  were  under  SI,  and  the  Kresge  chain  acted  on  that 
theory  with  great  success.  Tinware,  crockery,  and  household 
lines  gave  way  to  drygoods,  with  a  tendency,  however,  to  keep 
away  from  piece  goods. 

Generally,  the  prices  of  goods  in  all  stores  in  one  chain  are 
standardized,  except  that  some  chains  make  a  difference  for 
stores  west  of  the  Mississippi.  The  United  Cigar  Stores  have 
only  one  price,  and  this  price  is  the  same  for  one  cigar  or  a 
hundred  of  the  same  brand. 

Managers  may  be  allowed  to  make  their  own  prices  on  local 
purchases.  One  grocery  chain  management  says:  "All  our  prices 
are  standardized  throughout  the  chain.  The  only  exception  to 
this  rule  is  in  the  case  of  green  vegetables,  dried  meats,  cottage 
cheese,  and  other  items  which  each  store  manager  buys  for  him- 
self and  on  which  he  bases  his  own  prices.  A  store  three  miles 
away  from  the  markets  naturally  is  entitled  to  a  little  longer 
price  on  lettuce  and  celery  than  a  store  downtown  which  can 
restock  its  green-goods  counter  at  any  time  during  the  day. 
Also,  in  the  three-mile-away  store,  the  manager  runs  a  larger 
risk  of  not  selling  out  all  his  vegetables.  He  has  to  add  enough 
margin  of  profit  to  insure  himself  against  loss." 

The  question  of  cutting  prices  is  a  matter  of  individual  poUcy. 
Some  stores  never  cut.  The  Penney  practice  is  to  put  the  price 
on  an  article  and  never  mark  it  down.  The  American  Stores  Co. 
cuts  prices  on  its  goods  when  it  deems  it  sound  merchandising 
poUcy  to  do  so. 

Turnover. — How  many  times  must  I  turn  my  merchandise  to 
make  a  profit?  If  this  question  could  be  answered  specifically, 
much  worry  would  be  saved  retailers.  But,  as  a  matter  of  fact, 
turnover  differs  very  widely.  It  is  generally  larger  in  the  chain 
store  than  in  the  independent  store,  and  larger  in  the  grocery, 
tobacco,  and  drug  chains  than  in  the  dry  goods  and  "five  and 
tens." 


PRICING  AND  TURNOVER  137 

Just  what  do  we  mean  by  turnover?  Ordinarily  speaking, 
turnover  to  the  manager  of  a  chain  store  means  the  number  of 
times  the  money  invested  in  stock  can  be  liquidated  and  rein- 
vested during  the  year.  "One  of  the  common  mistakes," 
says  Mr.  Swanton,  of  the  Winchester  Stores,  "in  figuring 
turnover  is  this:  you  will  hear  many  merchants  say:  'My  sales 
are  $200,000  this  year.  My  inventory  is  $50,000.  I  have 
turned  over  four  times,  because  $200,000  is  four  times  my  inven- 
tory figures.'  Turnover  must  be  figured  as  the  cost  of  goods 
sold  to  the  cost  value  of  inventory.  Take  the  case  just  quoted. 
If  this  merchant  should  sell  $200,000  worth  of  merchandise  in 
all  departments  of  his  business,  and  his  average  mark-up  was 
57  per  cent.,  his  cost  of  goods  sold  would  be  $200,000,  less 
mark-up  figure,  which  would  be  $127,000.  This  amount,  divided 
by  his  average  inventory,  say  $50,000,  would  equal  two  and  one- 
half  times  turnover  and  not  four  times  turnover." 

The  value  of  turnover  analysis  to  the  chain  is  that  it  keeps 
constant  check  on  the  articles  which  show  profit  and  those  which 
do  not.  The  great  secret  of  success  in  chain  stores  is  to  keep 
the  stock  turning,  to  keep  every  line  selling,  and  to  make  a  profit 
on  every  line.  A  chain  would  rather  be  out  of  a  certain  product, 
and  permit  the  customer  to  go  somewhere  else,  than  to  carry  it  if 
it  is  losing  money.  This  explains,  according  to  Mr.  F.  J.  Arkins, 
of  the  Alexander  Hamilton  Institute,  the  reason  that  in  order 
not  to  lose  money,  as  soon  as  it  is  discovered  that  a  particular 
line  is  moving  too  slowly,  prices  are  reduced  and  bargains 
featured.  If  the  first  reduction  in  price  does  not  attract 
attention  the  reductions  continue  until  a  market  is  found  for 
the  articles.  The  whole  effort  is  to  move  that  particular  line 
out  of  stock  as  rapidly  as  possible,  and,  if  it  is  necessary  to  take 
a  loss,  to  get  the  loss  behind  the  chain  at  the  earliest  possible 
moment.  The  idea  is  not  new  or  untried.  It  was  a  principle 
established  by  A.  T.  Stewart,  in  the  merchandising  of  dry  goods 
in  New  York,  in  the  early  part  of  the  last  century. 

It  was  the  strict  pursuance  of  this  policy  of  keeping  up  turnover 
that  allowed  the  great  majority  of  chain  organizations  to  liqui- 
date without  the  enormous  losses  which  many  retailers  experi- 
enced in  the  post-war  deflationary  period  through  holding  on  to 
their  stocks  rather  than  cutting  prices  before  it  was  too  late. 


138  CHAIN  STORES 

Analysis  of  Turnover. — A  slow  turnover  involves  waste  and 
expense.  In  some  cases  the  damage  is  apparent  at  first  sight, 
but  in  others  it  Ues  deeper  and  must  be  analyzed.  The  Chamber 
of  Commerce  of  the  United  States  has  divided  the  elements  of 
waste  due  to  slow  turnover  into  the  following  classes : 

1.  Investment. 

2.  Interest. 

3.  Mark-down. 

4.  Salaries  and  wages. 

5.  Shelf  or  storage  room. 

6.  Prestige  and  reputation. 

7.  Inefficiency. 

Taking  them  up  individually: 

1.  The  amount  of  goods  in  stock  and  the  amount  of  time 
these  goods  must  be  carried  before  they  are  sold  determines  the 
profit,  assuming  mark-up  is  the  same.  Naturally,  the  more 
frequent  the  turnover,  the  larger  the  profit  on  the  same 
investment. 

2.  As  few  chain  stores  are  borrowers,  the  interest  charges 
would  rarely  enter  the  turnover  equation.  With  many  inde- 
pendent retailers,  however,  interest  becomes  of  great  impor- 
tance. 

3.  The  necessity  of  marking  goods  down  is  ordinarily  a 
sign  of  poor  turnover,  which,  in  turn,  might  have  been  due  to 
overbuying,  too  high  a  price,  or  lack  of  demand. 

4.  Naturally,  sales  expense  is  increased  with  slow  turnovers, 
since  the  same  sales  force,  more  efficiently  managed,  could  sell 
in  six  months  what  actually  sells  in  a  year. 

5.  Shelf  or  storage  room  is  too  valuable  to  be  taken  up  by 
slow-moving  goods. 

6.  The  reputation  of  the  store  suffers  if  it  is  known  to  have 
a  large  stock  of  old  goods. 

7.  Over-buying  is  ordinarily  a  dangerous  policy.  Except 
when  there  are  extraordinary  conditions,  fresh  supplies  can  be 
obtained  at  short  notice;  but  an  oversupply  of  goods  cannot  be 
so  easily  disposed  of.  Hence  the  whole  chain  of  evils  arising  from 
slow  turnover  will  occur. 

Figure  14  shows  graphically  two  ways  of  illustrating  the  profits 
due  to  more  frequent  turnovers: 


PRICING  AND  TURNOVER 


139 


i     i     §     §     § 

S       8       o 


FF* 


140  CHAIN  STORES 

Each  of  the  columns  in  series  A  represents  sales  amounting 
to  $100,000,  but  the  number  of  turnovers  increases  from  1  in  A-1 
to  8  in  A— i,  and  it  will  be  observed  that,  with  each  increase  in 
turnover,  the  stock  investment  as  well  as  the  interest  are  cut 
in  two  while  the  amount  of  profit  increases. 

Series  B  shows  uniform  stock  investments  and  costs  of  inter- 
est throughout,  while  the  amount  of  profit  increases  with  the 
number  of  turnovers. 

Series  A  proves  the  decreased  investment  needed  to  perform 
a  given  amount  of  business  while  Series  B  proves  the  increased 
business  and  profits  which  accrue  to  the  same  investment  upon 
a  multiplied  turnover. 

Increasing  Turnover. — It  is  possible  to  increase  stock  turnover 
in  two  ways: 

1.  Sales  may  be  increased  while  amount  of  stock  remains 
practically  the  same  or  increases  at  a  rate  below  that  at  which 
sales  are  increasing.  This  method  is  the  ordinary  one  and  is 
perfectly  safe,  since  it  is  based  on  sound  merchandising  principles. 

2.  The  second  method  is  to  cut  the  price.  As  one  authority  on 
the  subject  points  out,  by  reducing  the  price  more  people  are 
included  in  the  group  of  purchasers,  since  more  people  are  able 
to  purchase  an  article  at  $1.00  than  at  $2.00. 

Price-cutting,  however,  is  a  dangerous  operation. 

If  everybody  cuts  prices,  total  sales  may  not  be  appreciably 
increased  while  profits  will  fall  off  dangerously. 

Price-cutting  of  staples  rarely  does  any  good  except  as  a  loss 
leader.  People  buy  staples — sugar,  flour,  coal — even  though  the 
price  is  high;  and  a  reduction  in  price  will  not  increase  their 
consumption  proportionately.  Some  merchants  keep  very  close 
track  of  sales  on  these  non-profit  items,  such  as  sugar.  In  the 
Sam  Seelig  stores  in  California,  the  average  proportion  of  sugar 
sales  to  gross  sales  is  10  per  cent.  If  one  of  the  stores  shows 
sales  of  12  per  cent.  15  per  cent,  or  even  18  per  cent,  there  is 
manifestly  something  wrong.  That  is,  sales  are  not  merely 
dollars  and  cents.  If  two  stores  each  sell  $1,000  worth  of  goods, 
it  is  quite  possible  for  one  to  earn  a  great  deal  more  than  the  other, 
given  the  same  overhead.  One  store  may  sell  too  large  a  propor- 
tion of  non-profit  staples. 

Staples   are   essentially   inert.     The    profit   comes   in   selling 


PRICING  AND  TURNOVER 


141 


articles  for  which  demand  is  not  steady,  but  can  be  created. 
The  most  reliable  business  is  that  which  is  neither  too  elastic  nor 
too  inelastic,  and  it  is  precisely  this  class  of  goods  in  which  the 
chain  store  deals. 

Rate  of  Turnover. — There  is  no  standard  rate  of  turnover. 
Each  store  is  slightly  different,  and  some  stores,  even  in  the  same 
chain,  vary  a  great  deal.  The  turnover  may  vary  with  the  differ- 
ent years,  the  stock  carried,  the  local  manager,  etc.  Some  of 
the  Penney  stores  turn  their  stock  ten  times  a  year,  but  the 


Jewelry  1  Iz 

Clo+hing  Z 

Shoes  3i'/2 

Drygoods  3'le 

Hardware  3'/2 

Varie+y  & 

Depf  Stores  S 

Groceries  10 

Candy  12 

Fig.  15. — Average  turnover  in  various  lines  of  merchandise. 


average  is  between  four  and  six.  Some  of  the  United  Cigar 
stores  are  said  to  turn  their  stocks  50  times  a  year.  A  five-  and 
ten-cent  store  must  secure  at  least  six  turnovers  a  year  to  be  suc- 
cessful, and  the  large  chains  do  better  than  this. 

Figure  15  shows  minimum  turnovers  for  some  types  of  goods, 
the  jewelry  turnover  being  so  low  that  no  chains  have  ever  been 
organized  successfully  in  this  field.  These  figures  should  not 
be  taken  as  the  approximate  rate  of  turnover  only,  in  any  of 
these  fields.  They  are  intended  merely  to  give  some  comparative 
idea  of  turnover  in  the  various  lines. 

Coming  down  to  turnover  in  a  particular  line  of  business,  we 
find  that  articles  generally  have  a  relation  to  each  other  in  rate 
of  sales,  and  that  these  can  be  computed  with  fair  accuracy. 


142  CHAIN  STORES 

One  of  the  large  drug  chains,  for  example,  has  set  certain  turnover 
requirements : 

Soda 52 

Candy 20 

■  Cigars 15 

Merchandise 8 

Total  turnover .  .  . " 10 

It  endeavors  to  keep  the  store  managers  constantly  alive  to 
their  stock  turnover  proposition  and  make  them  see  how  impor- 
tant it  is  that  when  the  inventory  is  taken,  it  should  closely  agree 
with  the  yearly  turnover  desired. 

Turnover  is  especially  necessary  in  candy  and  cigars  because 
proper  turnover  in  those  lines  has  a  large  influence  on  sales. 
People  like  candy  and  cigars  fresh.  Patent  medicines  allow  a 
more  rapid  turnover  than  drugs.  Rubber  goods  need  exceptional 
care.  In  the  case  of  rubber  goods,  although  overbuying  is 
harmful,  underbuying  and  lost  sales  are  even  more  harmful  to 
the  gross  profit  average  because  goods  of  this  nature  bring  an 
exceptionally  good  return.  The  Liggett  chain  tries  to  steer  a 
middle  course  and  not  lose  sight  of  the  fact  that  annual  turnover 
in  the  store  must  show  ten  times  or  better.  Toilet  articles, 
perfumes,  and  novelties  more  often  defeat  plans  for  a  proper 
turnover  than  any  other  class  of  drug  merchandise.  Managers 
are  cautioned  to  use  extreme  care  in  stocking  these  lines. 

According  to  Mr.  Beckmann,  of  the  National  Chain  Store 
Grocery  Association,  the  turnover  figures  in  grocery  lines  are 
startling  in  their  differences.  The  average  retail  grocer  turns 
his  goods  perhaps  twelve  times  a  year,  while  the  chain  store 
turns  them  from  36  to  50  times,  according  to  actual  record. 
The  wholesaling  end  of  the  chain  store — that  is,  the  department 
analogous  to  the  grocery  jobber — shows  a  turnover  of  form  14 
to  18,  while  the  turnover  of  the  ordinary  wholesale  grocer  is 
from  six  to  eight  times. 

Securing  Turnover  in  All  Lines. — The  average  independent 
retailers  constantly  bring  down  their  turnover  averages  because  of 
the  large  amount  of  goods  on  their  shelves  which  either  do  not  sell 
at  all,  or  sell  so  rarely  as  to  make  it  unprofitable  to  carry  them. 


PRICING  AND  TURNOVER  '  143 

Chain  stores  go  on  the  principle  that  all  goods  carried  must 
sell.  If  reductions  in  price  do  not  dispose  of  them,  the  chain 
makes  use  of  its  distribution  and  concentrates  the  articles  where 
they  do  sell.  It  is  a  fact  that  some  store  in  the  chain  can  generally 
be  found  which  will  sell  a  product  which  no  inducement  to  the 
public  can  move  from  another  store  in  the  chain. 

If  a  drop  in  price  is  known  to  be  coming,  or  because  it  is  near 
the  end  of  the  season,  chain  groceries  hold  off  from  purchasing, 
and  transfer  goods  from  the  stores  that  cannot  sell  them  to  the 
stores  that  can.  In  this  way  they  make  sure  that  no  "  shelf - 
warmers"  will  be  in  the  way  at  any  store  when  the  anticipated 
change  takes  place. 

To  stimulate  the  store  manager,  quotas  are  often  made  up 
from  the  records  at  the  central  office  and  sent  out  to  him,  showing 
what  his  total  sales  for  the  month  should  be  and  perhaps  indicat- 
ing turnover  in  various  lines.  Thus  the  store  manager  knows 
at  all  times  exactly  where  he  stands  and  whether  he  is  improving 
or  running  behind  previous  averages.  The  merchandise  turnover 
of  the  chain  as  a  whole  depends  more  or  less  on  the  purchasing 
policy,  but  in  many  chains  the  store  manager  has  it  in  his  power 
to  regulate  turnover  to  a  great  extent.  That  is,  he  selects  from 
the  lists  sent  him  those  articles  he  can  sell. 

The  United  Cigar  Stores  Co.  ships  its  stores  every  week  a 
quota  of  supplies  which  must  be  sold.  Turnover  is  especially 
important  in  seasonal  goods  and  style  lines.  Failure  to  turn 
these  goods  promptly  may  change  profits  into  losses. 

Turnover  and  Business  Conditions. — It  is  difficult  to  resist  the 
temptation  of  purchasing  in  advance  of  a  rising  market.  Yet 
time  and  again  the  soundness  of  the  principle  of  selling  at  cost- 
plus  has  been  demonstrated,  and  the  folly  of  purchasing  far  in 
advance  of  actual  requirements.  Sharp  lifts  in  price  may  be 
met  by  a  grumbling  purchaser,  but  he  will  remember  this  in  the 
future.  The  chain  stores  consistently  build  up  a  background  of 
goodwill  by  their  price  policy  until  the  public  feels  confident 
that  it  is  not  being  cheated. 

As  an  example  of  the  soundness  of  chain  policies,  the  prices 
of  merchandise  in  the  United  States  declined  from  25  per  cent,  to 
40  per  cent,  in  the  United  States  during  1921,  while  the  value  of 
sales  in  the  chain  grocery  stores  declined  only  16  per  cent.     This 


144  CHAIN  STORES 

shows  the  actual  sales  volume  must  have  increased.  But,  as 
groceries  belonging  to  chains  deal  mainly  in  staple  articles,  the 
increased  turnover  must  have  taken  place  directly  at  the  'expense 
of  independent  grocers  whose  hold  on  the  goodwill  of  the  public 
was  not  strong  enough  to  withstand  a  period  of  depression. 

Charles  E.  Merrill,  of  Merrill,  Lynch  &  Co.,  a  banking  firm 
which  has  financed  six  of  the  large  chain  systems,  says:  "During 
the  first  half  of  1921,  the  decrease  in  sales  prices  was  so  rapid 
that  the  problem  was  to  take  in  enough  for  operating  expenses. 
This  was  accomplished  by  great  economies.  As  a  result,  the 
chain  stores  are  making  more  money  than  they  were  a  year  ago 
when  high  prices  prevailed. 

"The  price  declines  in  the  five- and  ten-cent  stores  have  been 
nearly  as  drastic  as  in  the  grocery  stores.  By  an  increase  in  the 
rapidity  of  turnover,  however,  the  five-  and  ten-cent  chains  have 
been  able  to  side-step  losses  which  occurred  to  others  during 
the  price  decline." 

The  remarkable  point  about  this  situation  is  that,  by  increas- 
ing turnover  in  a  period  of  unprecedented  deflation,  chains  like 
Woolworth  and  Kresge  were  able  to  make  as  much  money  as  in 
previous  years.  It  illustrates  forcefully  the  practical  advantages 
of  turnover  and  the  irresistible  attraction  of  price  as  a  basis  of 
competition  in  hard  times. 

Conclusions. — "Small  profits  on  an  article  will  become  big  if 
you  sell  enough  of  the  article"  was  one  of  Frank  W.  Woolworth's 
maxims.  In  these  few  words  he  has  summed  up  the  principles 
of  pricing  and  turnover.  The  chain  of  stores  which  he  founded 
has  steadily  carried  out  the  policy  which  he  commenced,  and  was 
the  only  chain  to  remain  proof  against  the  difficult  problems 
which  had  to  be  met  in  the  period  of  war  and  in  the  post-war 
deflation. 

It  is  only  necessary  to  add  to  the  above  statement  that  turn- 
over must  be  distributed  among  all  the  stock  and  the  fundamental 
statement  is  complete.  One  of  the  greatest,  if  not  the  greatest, 
reasons  for  the  chain  store's  pre-eminence  in  the  retail  field  is 
the  careful  observance  of  this  policy  of  pricing  and  turnover. 
In  a  way,  the  necessity  of  securing  turnover  ensures  a  reasonable 
price  to  the  consumer,  but  it  is  only  by  the  proper  correlation  of 
these  two  factors  that  the  most  efficient  results  are  obtained. 


CHAPTER  X 
EXPENSES  AND  PROFITS 

Outline 

Cost  of  doing  business. 

1.  Dependent  on 

(a)  Policy. 
(6)   Siza 

(c)  Product. 

(d)  Location. 

2.  Detailed  expenses. 

(a)   Salary  largest. 
(6)   Rent  next. 

3.  Savings  in  expense. 

(a)   Elimination  of  deliveries. 
(6)   Cash-and-carry  policy. 

(c)  Standardization  of  method. 

(d)  Elimination  of  waste. 

4.  Overhead. 

(a)  Decreased  by 

1.  Increased  volume  of  sales. 

2.  Addition  of  new  retail  links. 

3.  Efficient  management. 
The  "cash-and-carry"  policy. 

1.  Eliminates  bad  debts. 

2.  Enables  chain  to  discount  purchases  immediately. 

3.  Simplifies  accounting. 

4.  Saves  time  verifying  accounts,  making  out  charge  slips,  etc. 
Gross  profits. 

1.  Increase  normally. 

(a)  Through  addition  of  new  links. 

(6)   Through  increased  sales  in  old  links, 
(c)    Through  improved  merchandising  methods. 
1.  Further  standardization. 
Store  profits 

1.  Dependent  on 

(«)  Location  of  store. 

(b)  Ability  of  nianagcr. 

(c)  Turnover  of  products. 

(d)  Efficient  supervision  by  headquarters. 
10  145 


146  CHAIN  STORES 

2.  Advisability  of  abandoning  unprofitable  sites. 
Increasing  profits. 

1.  Increasing  turnover. 

2.  Increasing  average  sale. 

(a)  Interdependence  of  cost  of  product  and  average  sale. 

3.  Odd-cent  profits. 

4.  Profits  made  by  local  managers. 


CHAPTER  XI 
EXPENSES  AND  PROFITS 

In  spite  of  large  overhead  expenses  for  highly  paid  executives, 
specialists  in  window  trimming,  merchandising  ideas,  purchasing, 
etc.,  the  chain  stores  manage  to  do  business  at  an  average  cost 
less  than  the  majority  of  their  independent  competitors.  "Why 
is  this  so?"  is  the  constant  query  of  the  independent  retailer, 
and  he  is  told  to  imitate  the  chain,  whereupon  he  seems 
to  be  no  better  off  than  before.  He  is  told  to  standardize 
his  accounting  methods,  increase  his  turnover,  cut  out  credit 
and  deliveries,  move  to  another  part  of  town  where  the  location 
is  better,  sell  only  stock  the  public  wishes,  etc.  And  because 
he  cannot  do  these  things  he  sets  up  a  clamor  about  unfair  compe- 
tition and  secret  discounts.  The  truth  of  the  matter  is  that  the 
chain  is  an  organization  of  individuals  whose  combined  intel- 
lects form  a  far  more  powerful  force  than  the  average  single 
individual  running  an  independent  store  can  command.  The 
store  manager  is  the  personal  representative  of  an  impersonal 
organization;  the  independent  store  owner  is  the  personal  repre- 
sentative of  a  personal  business. 

Probably  the  greatest  factor  in  keeping  down  chain  expenses 
is  a  careful  accounting  system.  Every  dollar  that  comes  in 
bears  a  certain  charge  against  it,  determined  by  long  experience 
and  careful  records.  Policies  that  do  not  pay  are  ruthlessly 
abandoned  on  the  graphic  evidence  of  their  failure  to  make'  good. 
If  a  chain  finds  some  particular  location  does  not  bring  in  enough 
business  to  carry  the  overhead  and  earn  a  profit,  that  store  is 
promptly  discontinued.  Losses  are  minimized.  No  old  goods 
are  allowed  to  remain  in  stock,  taking  up  room  and  eating  up 
profits.  It  is  a  combination  of  business  initiative  and  system 
which  keeps  down  chain  store  expenses  and  enlarges  net  profits. 

The  Cost  of  Doing  Business. — The  variations  in  the  actual 
cost  of  doing  business  are  wide.     They  are  dependent  on  so  many 

147 


148  CHAIN  STORES 

factors  of  policy,  of  size,  of  line  of  goods  carried,  of  location  of 
stores,  etc.,  so  that  the  matter  can  be  treated  only  suggestively, 
by  stating  a  few  of  the  general  principles,  and  supporting  them 
by  concrete  examples  from  stores  in  several  lines. 

The  following  table  is  made  up  from  a  number  of  sources,  and 
is  not  intended  to  be  authoritative  or  complete,  but  merely  illus- 
trative of  the  effect  of  the  product  on  costs. 

Cost  of  Doing  Business 

Druggists 22-30% 

Tobacco 8-20 

Dry  goods 10-25 

Groceries 4-15 

Variety 18-25 

Shoes 18-25 

Groceries  and  tobacco,  where  the  turnover  is  very  rapid, 
can  usually  bring  operating  expenses  farthest  down.  The  Penney 
organization,  with  a  10  to  12  per  cent,  operating  expense,  is  unique 
in  the  dry  goods  line  when  compared  with  20  per  cent,  for  inde- 
pendent retailers  in  direct  competition  with  them. 

Detailed  Expenses. — The  merchandising  department  of  the 
New  York  World  supplies  the  following  average  figures  on  chain 
store  costs. 

Average  rental 8  % 

Average  help 15 

Average  loss  and  depreciation 1 

Average  light,  maintenance 2  3^ 

Average  overhead 3 

•  Total 29  H  % 

The  Piggly  Wiggly  stores  present  by  far  the  lowest  operating 
costs  of  any  figures  available.  In  the  week  ending  October  6, 
1917,  the  net  sales  of  nine  stores  operating  in  Memphis  were 
$25,  429.90.  The  cost  of  doing  business  during  that  same  period 
was  $795.11.  The  average  cost  of  doing  business  was  3.12  per 
cent. 

The  expense  total  was  made  up  as  follows : 


EXPENSES  AND  PROFITS  149 

Insurance $  13 .  70 

Salaries 494.85 

Ice 46.20 

Light 21.74 

Rent 180.92 

Sundries 24 .  32      . 

Telephone 11 .81 

Water 1.67 

Total $795.11 

Salaries  are  the  largest  item  of  expense,  and  efforts  to  econo- 
mize  along   this   line   generally   result   disastrously,    especially 


H  Expenses  of  Drug  Si-ores 

I    I  Expenses  of  Five  and  Ten  Cenfjfores 


10 16     4.494.48    1.7&  1.5     0.691.3    0.47  9.4    1.21  a87  Q36  0.7    0.51        0.)9 
Salaries    Rent    Adver.   Heat-Lt     Dep.    Ins.-Tox  Supplies  Del.     BadDts. 


Fig.  16. 


-Comparison  of  expenses  of  five  and  ten  cent  stores  with  those  of  drug 
chain  stores. 


when  it  is  considered  that  so  much  of  the  chain's  prosperity  lies 
in  the  hands  of  the  store  managers.  Rent  is  generally  the  next 
item.  This  must  be  carefully  watched.  For  example,  in  the 
United  Cigar  Stores,  where  every  item  is  figured  in  percentages, 
it  is  immediately  possible  to  point  to  a  store  paying  too  much  rent. 
If  Kansas  City  were  paying  eight  per  cent,  for  rent,  there  would 
be  an  immediate  investigation. 

Elimination  of  delivery  and  credit  accounts,  together  with 


150  CHAIN  STORES 

small  amount  of  advertising,  are  the  largest  factors  in  decreasing 
chain  store  expenses,  as  compared  with  independent  retailers. 
The  salary  percentage,  as  a  rule,  is  higher.  From  two  to  five 
per  cent,  is  saved  on  deliveries  and  perhaps  3^^  of  1  per  cent,  on 
bad  debts. 

Figure  16  shows  a  comparison  of  expenses  between  the  five 
and  ten  cent  store  and  the  drug  store.  The  first  three  items, 
salaries,  rent,  and  advertising  in  both  cases  follow  the  same 
order.  Heat  and  light  in  a  five  and  ten  cent  store,  owing  to  the 
larger  unit  size,  would  naturally  be  double  that  of  a  drug  store. 

Few  chains  are  willing  to  disclose  their  operating  costs  from  a 
just  reluctance  to  discuss  their  particular  methods  of  effecting 
operating  economy.  It  must  not  be  supposed,  however,  that 
profits  are  determined  by  the  cost  of  doing  business.  This 
figure  with  its  components  is  merely  the  index  number  which 
points  out  to  the  executive  how  this  one  factor  in  profits,  control 
of  operating  expense,  stands  at  the  moment. 

Overhead. — Overhead  shows  broad  variations.  In  periods  of 
prosperity,  when  sales  are  large,  overhead  goes  down.  When 
sales  fall  off,  overhead  increases.  Overhead  is  inelastic  in  most 
of  its  items,  and  is  slow  to  react  to  business  conditions  generally. 
Where  all  buying  is  done  at  headquarters,  overhead  is  apt  to  be 
larger  than  where  local  managers  have  some  buying  responsi- 
bility. 

George  H.  Bushnell,  Vice  President  and  Comptroller  of  the 
J.  C.  Penney  Co.,  once  stated  that  each  store  was  charged  a  fixed 
percentage  on  sales  each  month  for  the  maintenance  of  the 
central  offices.  This  takes  care  of  rent,  salaries,  traveling 
expenses  for  officials,  etc.  In  1918,  this  percentage  was  one  and 
two-fifths  per  cent,  which  included  cost  of  accounting  for  197 
stores  operated  at  that  time.  Accounting  was  only  two-fifths 
of  one  per  cent.  This  percentage  for  1918  absorbed  all  the 
corporation  taxes  assessed  against  the  stores. 

Again,  the  vice-president  of  a  large  drug  company  said: 
"We  aim  to  keep  overhead  at  four  per  cent,  of  gross  volume, 
including  salaries  of  general  officers,  rent,  traveling,  auditors,  sales 
managers,  etc."  The  executive  of  another  chain  of  250  stores 
claimed  his  overhead  expenses  had  been  going  down  every 
year.     For  the  first  year  or  two  it  ran  up  to  ten  per  cent,  and  since 


EXPENSES  AND  PROFITS  151 

then  had  decUned  at  the  rate  of  about  one  per  cent,  annually.  In 
1918  it  was  only  three  per  cent. 

Overhead  decreases  with  the  number  of  member  stores  oper- 
ated. A  new  retail  link  in  the  chain  requires  little  addition  to 
the  chain  overhead.  Thus  small  chains  normally  have  larger 
overhead  expenses  than  the  larger  ones.  The  whole  matter,  of 
course,  is  dependent  on  efficient  management.  Large  salaries 
paid  to  executives  do  not  necessarily  mean  great  overhead, 
because  the  expense  is  so  broadly  distributed,  and  the  profits 
accruing  from  the  benefits  of  having  these  high-salaried  execu- 
tives at  the  head  of  the  business  are  so  large  that  the  entire  sum 
appears  small. 

Keeping  Expenses  Down. — Ask  the  proprietor  of  an  ordinary 
retail  store  what  his  expenses  are  and  he  may  be  able  to  tell  you, 
but  probably  he  will  not.  The  executive  of  a  chain  can  tell 
almost  instantly  just  what  the  expenses  of  the  chain  as  a  whole  are 
and  the  expenses  of  each  his  stores.  Expenses  are  kept  down 
and  should  be  kept  down  by  unceasing  supervision.  The  varia- 
tions in  expense  between  stores  of  the  same  size  that  have 
obtained  their  normal  volume  of  business  is  not  as  a  rule  very 
great.  In  the  case  of  a  new  store,  of  course,  which  has  no  definite 
clientele,  and  is  not  known,  etc.,  there  is  a  high  initial  overhead 
which  comes  down  to  normal  as  the  store  becomes  established. 

In  one  drug  chain  all  the  store  managers  are  given  a  bonus 
of  $25  a  month  if  they  can  succeed  in  holding  their  expenses, 
outside  of  rent  and  advertising,  down  to  15  per  cent,  of  their 
sales.  Rent  and  advertising  are  eliminated  because  the  selection 
of  the  location  and  the  rent  paid  are  not  controlled  by  the  store 
manager.     This,  of  course,  is  true  in  almost  all  chains. 

All  percentages  used  in  making  up  the  bonus  are  computed 
according  to  the  sales  volume  of  the  gtore. 

Salaries  and  commissions 10% 

Light,  heat,  water 1  f^ 

Contingent,  renewal,  expenses l}^ 

Supplies 2 

Total 15% 

A  great  many  of  the  store  managers  earn  the  bonus  every 


152  CHAIN  STORES 

month,  since  this  15  per  cent,  is  computed  on  the  average  of  all 
stores,  and  many  managers  find  it  possible  to  surpass  this 
average.  It  can  be  done  by  getting  more  volume  of  sales  and 
turnover,  or  actually  decreasing  some  of  their  expenses.  The 
store  managers,  in  addition  to  the  actual  cash  bonus,  are  glad  to 
have  their  store  make  a  better  showing  than  the  other  stores,  and 
it  makes  them  feel  as  though  they  were  on  the  road  to  promotion. 

This  example  has  been  given  because  the  majority  of  chains 
base  their  bonus  to  store  managers  on  the  volume  of  business 
or  the  net  profits  of  the  store. 

Albert  I.  Stewart,  Manager  of  the  Sam  Seelig  Stores  in  Cali- 
fornia, says  the  average  cost  of  doing  business  for  a  grocery  store 
is  13  per  cent.  A  curious  system  of  giving  a  bonus  to  managers 
is  in  vogue  in  this  organization.  Every  manager  who  at  the 
end  of  the  month  shows  an  actual  inventory  in  excess  of  his  book 
balance  gets  a  bonus  of  3^  of  1  per  cent,  of  his  sales  for  the 
month.  The  basis  is  not  volume  of  business  but  store  manag- 
ing efficiency.  The  manager  who  constantly  earns  this  bonus 
has  his  pay  raised. 

The  bonus  is  reckoned  not  on  expense  but  on  inventory. 
Every  month  the  inventory  man  comes  around.  Suppose  one 
month  he  finds  stock  worth  $3,809.05  and  the  following  month 
$3,824.04,  as  in  the  example  quoted  in  "Business"  for  November, 
1921.     Then  headquarters  draws  up  this  recapitulation. 

Inventory  at  beginning  of  month $  3 ,  809 .  05 

Purchases  through  month 6 ,  444 .  08 

Total  charged $10,253. 13 

Sales  for  month 6,497.06 

Book  balance $  3,756.07 

Retail  inventory 3,809.05 

Book  balance 3 ,  756 .  07 

Gain : $         52.98 

The  reason  for  this  gain  is  that  many  articles  are  invoiced 
to  the  store  at  group  prices,  that  is,  two  bars  of  soap  for  15  cents, 
three  cans  of  soup  for  a  quarter,  etc.  Thus  if  the  store  is  properly 
managed  the  manager  should  have  no  difficulty  in  showing  a 
profit. 


EXPENSES  AND  PROFITS  153 

Eliminated  Expenses. — The  majority  of  cliain  stores  arc 
"cash-and-carry."  In  the  last  20  years  this  idea  has  become 
thoroughly  fixed  as  one  of  the  principles  of  chain  store  operation. 
It  has  several  great  advantages: 

1.  It  eliminates  bad  debts. 

2.  It  enables  chain  organizations  to  discount  their  purchases 
immediately,  and  this  alone  is  a  saving  not  generally  recognized. 
For  example,  2  per  cent,  payable  in  a  month  is  36  per  cent,  in  a 
year. 

Savings  Effected  Through  Taking  Discounts 


Net 

Per  Cent,  per  j 

1  per  cent.  10  days 

30  days 

18 

2  per  cent.  10  days 

30  days 

36 

3  per  cent.  10  days 

30  days 

64 

3  per  cent,  cash 

30  days 

36 

5  per  cent.  10  days 

30  days 

90 

8  per  cent.  10  days 

30  days 

144 

2  per  cent.  10  days 

60  days 

14.4 

3  per  cent.  10  days 

60  days 

21.6 

2  per  cent.  30  days 

60  days 

24 

5  per  cent.  30  days 

4  months 

20 

5  per  cent.  30  days 

60  days 

60 

3.  It  simplifies  accounting,  which  otherwise  would  assume 
great  proportions. 

4.  It  saves  time  verifying  accounts  and  making  out  charge 
slips,  bijls,  etc. 

Another  great  expense  which  has  been  done  away  with  by 
chain  organizations  is  delivery.  In  the  case  of  grocery  stores 
this  expense  often  mounts  up  to  four  and  five  per  cent,  of  gross 
sales,  while  a  department  store  pays  around  IJ^^  per  cent,  for 
deliveries. 

The  Piggly  Wiggly  stores  by  their  self-service  idea  have 
cut  down  the  largest  item  of  expense,  that  is,  labor,  but  it  has 
yet  to  be  proved  how  far  the  self-service   dea  can  be  extended. 

After  all,  the  greatest  universal  saving  effected  in  chain  store 
operations  is  the  efficient  standardization  of  all  processes  con- 
nected with  running  the  business  from  the  top  to  the  bottom. 
The  greatest  saving  is  the  elimination  of  waste. 

Profits. — The  ultimate  proof  of  the  success  of  any  business  is 
the  ability  to  pay  regular  dividends  to  stockholders.     Capital  is 


154 


CHAIN  STORES 


invested  in  the  business  for  the  sole  purpose  of  having  it  return 
net  profits.     Net  profits  on  sales  are  not  the  same  as  net  profits 


18 

17 
16 
15 
14 
13 

12 
II 

'  cK 

^-^^ 

/\ 

U»ii^ 

\ 

/       ^ 

s. 

.^Y 

\ 

/ 

\ 

..\^^ 

> 

I              j 

f 

\ 

<\'f^ 

\ 

ti^ 

\ 

y^ 

V 

^ 

^•— 

— . ^- 

^fTS^ffw^'^-^Ar?^-;;^ 

•-0      \ 

\ 

\ 

^^       - 

^^_ 

6 
c 

\    ^ 

/' 

V^ 

4 

3 

2 
1 

n 

1912 

1913 

1914. 

1915 

1916 

1917 

1918 

1919 

1920 

Fig.  17. — Comparison  of  net  earnings  on  common  stock  and  sales  of  the 
F.  W.  Woolworth  Co. 


1915  1916  1917  1918  1919  1920  1921 

Fig.  18. — Comparison    of    earnings   per  share    of    common    stock  of  the  four 
largest  five  and  ten  cent  store  chains. 

on  the  invested  capital.  They  are  higher  or  lower  in  accordance 
with  the  number  of  times  the  inventory  can  be  turned  over  and 
the  percentage  of  net  profit  realized.     Figure  17,  showing  the  net 


EXPENSES  AND  PROFITS 


155 


earnings  on  sales  of  the  Wool  worth  Co.,  compared  with  net 
earnings  on  common  stock,  shows  how  wide  the  variation  between 
the  two  may  become.  With  the  exception  of  1912,  the  year  of 
the  Woolworth  reorganization,  net  earnings  on  the  common  stock 
have  been  larger  than  net  earnings  on  sales  each  year. 

Figure  18  shows  a  comparison  of  the  earnings  per  share  of 
common  of  each  of  the  four  largest  five-  and  ten-cent  store  organi- 
zation during  the  past  five  years.  Woolworth,  as  mentioned 
before,  was  the  only  one  of  these  chains  to  keep  the  price  limit  at 
ten  cents,  while  the  other  chains  went  up  above  this.  The  point 
which  this  chart  clearly  brings  out  is  that  a  chain  store  dealing 
in  the  cheapest  kind  of  commodities,  as  the  five  and  ten  cent 


DeD+.Store 

A%\ 

Five  and  Ten 
Cent  Store 

t7o| 

Cigars 

8%| 

Drugs 

&7o| 

Shoes 

8%1 

Res+aurant 

10%| 

aoaks  and  Suits  I0%| 

Y/omen5Wear*ist5l57ol 

Orocery  15  /o] 

Fig.  19. — Percentage  of  profit  required  on  gross. 


store,  can  make  profits  in  times  of  high  prices  as  well  as  in  those  of 
low  prices. 

The  ideal  of  the  United  Cigar  Stores  for  a  long  time  was 
to  cut  gross  profits  one  per  cent,  each  year  and  by  selling  the  con- 
sumer more  at  a  lower  price  make  larger  net  profits.  Ordinarily 
a  chain  store  is  satisfied  with  a  far  smaller  profit  on  gross  than 
the  independent,  and  the  secret  of  its  willingness  to  accept 
this  lies  in  turnover  more  than  in  any  other  cause.  It  pays  to 
sell  Uneeda  Biscuit  a  shade  less  than  independent  grocers  when 
the  chain  can  turn  it  52  times  in  the  year  and  the  independent 
grocery  not  half  so  often.     The  average  grocer  would  like  to  get 


156  CHAIN  STORES 

25  per  cent,  gross  profit  on  a  sale,  and  this  he  feels  he  must  do  if 
he  is  going  to  make  a  profit.  The  chain  grocery  in  many  cases  is 
satisfied  with  half  this.  The  grocer  may  get  five  to  eight  per  cent, 
net,  but  a  chain  grocery  with  a  turnover  from  three  to  four  times 
as  large  can  be  satisfied  with  two  per  cent.  net. 

Figure  19  shows  the  percentage  of  profit  on  gross  which  chains 
in  various  lines  of  retailing  plan  to  obtain.  These  figures,  of 
course,  are  mere  approximations,  and  it  is  perfectly  possible  for 
an  organization  to  operate  successfully  with  a  larger  or  smaller 
profit  on  gross.  Generally,  the  older  the  company,  the  smaller 
profit  needed  to  obtain  on  gross.  This  is  due  to  the  standardiza- 
tion of  method  which  comes  only  with  long  practice. 

Store  F*rofits. — Profits  from  each  individual  store  depend  on  all 
the  factors  we  have  been  discussing — on  the  ability  of  the  man- 
ager, on  the  location  of  the  store,  on  the  pricing  of  the  products,  on 
the  turnover,  on  the  efficient  supervision  by  the  central  office, 
etc.  Notwithstanding  all  these  attentions,  some  stores  make 
more  money  than  others,  because  of  the  predominance  of  some 
particular  advantage.  Stores  that  do  not  make  profits  should 
in  most  cases  be  abandoned,  and  actually  are.  If  there  has  been 
a  mistake  in  judgment,  the  easiest  way  to  remedy  it  is  to  take 
immediately  whatever  loss  has  been  incurred  and  start  another 
store  somewhere  else. 

Some  chains  find  it  desirable  to  operate  several  links  at  a 
nominal  profit  rather  than  sacrifice  the  advantages  to  be  gained 
in  the  way  of  publicity  and  advertising.  A  show  store  which 
barely  pays  for  itself  as  an  individual  unit  may  serve  as  a  drawing 
card  for  all  the  others. 

Store  profits,  like  everything  else,  and  more  than  anything 
else,  are  scrutinized  by  the  management.  If  profits  fall  off 
in  a  particular  store,  there  is  immediate  inquiry.  There  is 
no  waiting  to  see  what  will  happen  next  month.  There  is  an 
investigation  to  find  out  what  really  happened  to  cause  this 
sudden  fluctuation.  A  sudden  profit  causes  a  similar  investiga- 
tion to  find  out  whether  the  cause  for  profit  in  that  store  cannot 
be  applied  equally  well  to  other  stores.  The  chain  organization 
is  constantly  profiting  by  the  mistakes  and  by  the  constructive 
plans  of  its  store  managers. 

It  is  to  the  advantage  of  nearly  every  individual  in  the  chain 


EXPENSES  AND  PROFITS 


157 


to  increase  profits.  It  is  possible,  therefore,  to  teach  the  person- 
nel methods  of  increasing  profits.  One  method  which  has  been 
found  successful  is  to  increase  the  size  of  the  average  sale. 

Law  of  the  Average  Sale.— An  increase  in  volume,  in  itself, 
does  not  necessarily  mean  an  increase  in  profits,  but  an  increase 
in  the  average  sale  per  customer  does  mean  an  increase  in  profits. 
The  following  figures  and  comments  are  adapted  from  an  article 
by  K.  G.  MacDonald,  General  Manager  of  the  Federal  System 
of  Bakeries  of  the  South: 

The  law  of  the  average  sale  is  briefly  as  follows:  "The  cost  of 
the  product  sold,  the  average  sale  per  customer,  and  the  net 
profit  are  interdependent — fluctuations  in  one  are  reflected  in 
the  other  two,  and  by  increasing  the  average  sale,  the  profit  is 
also  increased." 

The  following  figures  were  taken  from  six  different  stores  in 
four  different  states,  chosen  at  random.  In  the  case  of  these 
stores,  the  cost  of  the  products  fluctuated  with  the  change  in 
price  of  the  raw  materials  from  which  they  were  made.  In  the 
average  store  this  factor  would  show  far  less  fluctuation,  since  in 
normal  times  the  cost  on  the  average  varies  but  little. 

Following  are  the  figures  on  store  A: 


Increase  or  decrease  from 
previous  month 


'A" 


Raw 

material 
used  % 


Ave. 
sale 


Profit 

% 


Raw 
material 


Ave. 
sale 


Profit 


June  (sales,  $4,043.26).. 
July  (sales,  $3,783.57).. 
Aug.  (sales,  $3,667.52). 
Sept.  (sales,  $3,614.60) . 


42.5 

24.0 

11.1 

45.1 

24.9 

12.5 

+2.6 

45.0 

23.8 

7.9 

-0.1 

40,8 

24.9 

12.0 

-4.2 

+0.9  +1  4 
-1.1  i  -4.6 
+  1.1   I  +4.1 


In  July,  this  store  earned  more  profit  than  in  June,  although 
the  July  sales  were  nearly  $300  less  than  the  June  figures. 
Although  the  material  cost  increased  in  July,  the  profit  also 
increased.  As  an  explanation  of  this,  the  average  sale  was 
increased  by  nearly  one  cent  per  customer.  Comparing  July 
with  August,  although  material  cost  was  lower,  the  profit  was 


158 


CHAIN  STORES 


considerably  less  for  the  average  sale  fell  off  more  than  one 
cent  per  customer  in  August.  That  is,  material  cost  down,  and 
average  sale  up  makes  increased  profits. 


B" 


Raw 
material 
used   % 


Ave. 
sale 


Profit 


Increase  or  decrease  from 
previous  month 


Raw 
material 


Ave. 
sale 


Profit 


June  (sales,  $3,847.19). 
July  (sales,  $4,015.81).. 
Aug.  (sales,  $4,248.52). 
Sept.  (sales,  $4,699.54) 


44.5 
51.0 
43.3 

42.8 


20.9 
21.7 
20.9 
21.7 


2.4 

5.2 
16.3 
18.3 


+6.5 
-7.7 
-0.5 


+0. 
-0. 
+0. 


+2.8 
+  11.1 
+2.0 


In  store  B  there  is  an  increase  in  volume  and  increase  in 
average  sale  in  July  as  compared  with  June  which  makes  in- 
creased profits  even  although  material  cost  was  higher  in  July. 
Comparing  August  with  September,  although  material  cost  was 
practically  the  same,  the  profit  was  increased  because  the  average 
sale  was  increased  by  almost  one  cent  per  customer. 


Increase  or  decrease  from 
previous  month 


Raw 
material 
used    % 


Ave. 
sale 


Profit 

% 


Raw 
material 


Ave. 


Profit 


June  (sales,  $5,562.56).. 
July  (sales,  $6,044.49) . . 
Aug.  (sales,  $6,597.96).. 
Sept.  (sales,  $5,962.16). 


37.8 

17.8 

16.9 

37.4 

18.5 

24.5 

-0.4 

+0.7 

37.6 

19.1 

26.7 

+0.2 

+0.6 

36,9 

18.9 

23.3 

-0.7 

-0.2 

+7.6 
+2.2 
-3.4 


The  figures  for  store  C  show  how  fluctuations  in  the  amount 
of  the  average  sale  affect  a  store  doing  a  large  volume  of  business. 
In  four  months,  material  cost  varied  less  than  one  per  cent,  but 
the  percentage  of  profit  went  up  as  the  average  sale  went  up,  and 
the  profit  came  down  as  the  average  sale  dropped.  The  volume 
being  large,  a  slight  falling  off  in  the  average  sale  resulted  in  a 
serious  decrease  in  the  percentage  of  profit. 


EXPENSES  AND  PROFITS 


159 


D" 


Raw 
material 
used   % 


Ave. 
sale 


Profit 


Increase  or  decrease  from 
previous  month 


Raw 
material 


Ave. 
sale 


Profit 


June  (sales,  $4,491.65).. 
July  (sales,  $4,420.66) . . 
Aug.  (sales,  $4,221.57).. 
Sept.  (sales,  $4,198.49). 


47.3 

21.3 

9.3 

37.8 

21.9 

18.7 

-9.5 

+0.6 

38.5 

21.6 

15.3 

+0.7 

-0.3 

38.9 

23.2 

16.0 

+0.4 

+  1.6 

+9.4 
-3.4 

+0.7 


June  and  July  was  a  period  of  reorganization  at  store  D.  It 
resulted  in  an  improved  system  of  operation  and  consequent 
conservation  of  materials.  Comparing  July  with  August,  there 
is  a  falling  off  in  profit  due  to  lower  average  sale.  In  September 
profit  for  the  month  increased  in  spite  of  advanced  material 
cost  because  average  sale  was  more  than  13^^  cents  more  per 
customer  than  in  August. 


"E" 

Increase  or  decrease  from 
previous  month 

^^'^  ,        Ave 
material        „„,^- 

used    %         «*•« 

Profit 

% 

Raw 
material 

Ave. 
sale 

Profit 

June  (sales,  $1,827.55)... 
July  (sales,  $1,762.00)... 
Aug.  (sales,  $1,872.28)... 
Sept.  (sales,  $1,730.60).. 

48.3 
41.4 
46.7 
46.4 

16.2 
16.9 
15.2 
15.0 

-6.9 

1.9 

-0.5 

-3.8 

-6.9 

+5.3 
-0.3 

+0.7 
-1.7 
-0.2 

+8.8 
-2.4 
-3.3 

In  three  of  the  four  months  store  E  lost  money, 
average  sale  is  significant. 


The  low 


"  "P** 

Increase  or  decrease  from 
previous  month 

Raw 
material 
used   % 

Ave. 
sale 

Profit          Raw 
%          material 

Ave. 
sale 

Profit 

June  (sales,  $4,551.21)..  . 
July  (sales,  $4,832.72) . .  . 
Aug.  (sales,  $5,116.39)... 
Sept.  (sales,  $4,541.60).. 

38.8 
39.5 
40.3 
42.2 

16.3 
18.5 
19.3 
17.6 

2.5 
6.3 

7.7 
1.6 

+0.7 
+0.8 
+  1.9 

+2.2 
+0.8 
-1.7 

+3.8 
+  1.4 
-6.1 

160  CHAIN  STORES 

Store  F  belongs  to  the  class  of  store  where  a  certain  minimum 
volume  of  business  must  absolutely  be  done  each  month  to  permit 
any  profit  at  all  being  earned.  This  is  chiefly  on  account  of 
the  heavy  fixed  overhead  in  the  way  of  rent  and  amortization 
charges  which  stores  of  this  class  must  carry.  Below  a  certain 
point  in  sales,  no  profit  at  all  is  possible,  no  matter  how  well 
controllable  expenses  are  held  down  and  no  matter  how  high  the 
average  sale  may  be.     The  law  still  holds,  however. 

In  the  case  of  this  store,  $4,500  per  month  is  about  the  mini- 
mum on  which  any  profit  can  reasonably  be  expected.  Compar- 
ing June  with  July,  a  small  increase  in  the  material  cost  was  far 
more  than  offset  by  a  marked  increase  in  the  average  sale  which 
resulted  in  an  increase  in  profit.  In  August,  although  material 
cost  was  slightly  higher,  as  the  average  sale  increased  nearly 
one  cent  per  customer,  the  profit  also  showed  a  fair  increase. 
In  September,  the  material  cost  advanced  again,  while  average 
sales  fell  off  nearly  two  cents  per  customer,  with  a  consequent 
sharp  falling  off  in  profits. 

This  condition  has  been  examined  at  length  because  of  the 
lucid  explanation  of  the  subject  and  the  evident  bearing  of  the 
point  in  question,  namely,  the  effect  of  increased  average  sale  on 
profits.  We  have  already  seen  in  another  connection  how  the 
Liggett  one-cent  sales,  by  increasing  average  sales,  allow  the  store 
to  make  this  enormous  reduction  in  selling  price  and  still  make  a 
nominal  profit. 

Miscellaneous  Profits. — A  member  store  in  a  grocery  chain 
frequently  turns  in  more  profits  than  was  to  be  expected  by  an 
examination  of  goods  shipped  to  that  store.  Many  items  sell 
for  nine  cents,  three  for  a  quarter,  or  so  much  a  case  of  one 
hundred.  Now  these  are  usually  charged  out  to  the  store  at  the 
group  price,  and  consequently  there  is  a  steady  but  uncertain 
source  of  profit  from  these  odd  cents. 

Then  many  member  stores  are  allowed  to  buy  milk,  green 
vegetables,  cottage  cheese,  and  other  articles  by  themselves. 
This  forms  another  source  of  profit  not  generally  counted  on. 

Chains  go  on  the  theory  that  "a  penny  saved  is  a  penny 
earned."  Thus  often  a  careful  check  is  kept  on  how  much  paper 
and  string  each  store  uses.  In  many  chains  a  penalty  is  put  on 
waste.     That  is,  a  manager  is  allowed  a  variation  of  3^^   of  1 


EXPENSES  AND  PROFITS  161 

per  cent,  on  bulk  goods.  He  is  allowed  3^  pound  out  of  one 
hundred  pounds  of  sugar  and  if  the  difference  runs  over  this,  he 
is  charged  for  it. 

Conclusions. — In  regard  to  expenses,  the  chain  organization 
expenses  should  be  no  more  proportionately  than  those  of  inde- 
pendent stores  in  the  same  locality  or  neighborhood.  As  a  matter 
of  fact,  they  should  be  materially  less  due  to  the  various  econo- 
mies and  savings  possible  for  the  chain  store  to  effect,  which  have 
been  mentioned  and  discussed  in  this  chapter.  That  is,  the 
elimination  of  credit  accounts,  the  abolition  of  deliveries,  and 
the  speeding  up  of  turnover  will  decrease  expenses  and  conse- 
quently increase  net  profits. 

In  comparison  with  other  retailing  ventures,  the  chain  organi- 
zations are  remarkable  for  consistent  steady  profits.  By  care- 
fully pursuing  a  policy  of  increasing  sales,  increasing  turnover, 
and  standardizing  of  method  and  routine,  they  offer  an  almost 
impregnable  front  to  periods  of  prosperity  and  depression. 


11 


CHAPTER  XI 
ADVERTISING 

Outline 

Tendency  towards  more  extensive  advertising. 

1.  Increased  competition  between  chains. 

2.  Geographical  growth  of  chains. 

3.  Improvement  in  advertising  practice. 
The  advertising  department. 

1.  Personnel. 

(a)  Advertising  manager. 
(6)   Window  trimmers. 
(c)   Artists,  etc. 

2.  Routine. 

(a)  Prepare  copy  at  headquarters. 

(6)   Alternative  practice  of  allowing   local   managers  certain  per- 
centage for  advertising. 
Benefits  of  advertising  to  chain. 

1.  Increased  sales  and  turnover. 

2.  Enlarged  clientele. 

3.  Increased  confidence  in  chain  and  its  products. 
Media  of  publicity. 

1.  Passive. 

(a)  Location. 

(6)  Window  trims. 

(c)  Window  pasters. 

(d)  Store  front. 

(e)  Outdoor  advertising. 

2.  Active. 

(a)  Advertising  in  local  newspaper. 
(6)   Distribution  of  "dodgers,"  pamphlets,  etc. 
The  advertising  appeal. 

1.  Institutional.  , 

(a)  Selling  the  organization. 

1.  Its  policy. 

2.  Its  methods. 

3.  Its  personnel 

4.  Its  service. 

5.  Etc. 

162 


ADVERTISING  163 

(b)  Character  of  copy. 

1.  To  create  interest. 

2.  Attractive  and  artistic. 
2.  Price  advertising. 

(a)  Featuring  loss  leaders. 

1.  Most  common  form  of  chain  advertising. 
The  advertising  agency  and  the  chain. 

1.  The  difficulty  of  the  agency  in  handling  local  advertising. 

2.  Necessity  for  contact  man. 


CHAPTER  XI 
ADVERTISING 

Chain  organizations  have  always  prided  themselves  upon  being 
in  the  forefront  of  retail  progress  as  far  as  selling  methods  are 
concerned.  Yet  in  advertising  they  have  lagged  behind,  not 
from  ignorance,  but  from  choice.  The  inception  of  the  chain 
store  movement  occurred  prior  to  the  great  development  in 
advertising.  Chain  merchandising  relied  on  location  rather  than 
advertising,  all  unconsciously  choosing  the  most  primitive  and 
most  effective  form  of  advertising,  namely,  that  of  showing  the 
product  directly  to  the  consumer. 

It  is  only  recently  that  chain  stores  began  to  realize  that  after 
all  the  appeal  of  their  products  to  the  public  might  not  be  entirely 
based  on  price.  A  certain  class  of  people  will  always  be  drawn  by 
the  price  appeal,  but  there  are  other  classes  to  whom  the  price 
appeal  means  little.  The  chain  advertising  pohcy  is  showing 
signs  of  breaking  away  from  the  traditional  price-list  advertising. 
What  the  future  has  in  store  is  by  no  means  clear  as  yet,  but  the 
following  tendencies  in  advertising  are  at  work : 

1.  Increased  competition  between  chain  and  chain,  both  selling 
at  approximately  the  same  price.  For  one  chain  to  attract  the 
balance  of  the  trade  it  is  necessary  to  find  a  new  appeal.  Hence, 
the  rise  of  institutional  advertising  by  some  chains,  the  coopera- 
tion of  manufacturers  and  chains  in  merchandising  campaigns 
which  include  advertising,  etc. 

2.  Merchandising  and  sales  policies  fully  developed.  The 
attention  of  the  chains  is  being  turn  on  publicity. 

3.  The  very  rapid  growth  of  the  chain  store  movement  in  the 
past  ten  years.  This  has  made  it  possible  for  many  chains  to 
advertise  which  before  had  to  confine  themselves  to  handbills  and 
"dodgers."  After  all,  a  chain  must  have  a  certain  minimum  dis- 
tribution to  make  advertising  effective. 

4.  The  growth  of  the  science  of  advertising,  and  its  natural 

164 


ADVERTISING  165 

extension  to  the  chain  store  field  as  a  logical  opening  for  applied 
modern  advertising. 

The  real  reason  why  the  chains  have  never  advertised  to  any 
extent  is  that  they  never  had  to  advertise.  The  customers  came 
anyhow.  It  was  like  the  early  days  of  the  automobile  industry 
when  cars  could  not  be  made  fast  enough  to  supply  the  demand. 

The  Advertising  Department. — The  advertising  of  the  chain 
organization  is  rarely  done  by  agencies.  The  chain  is  closely 
organized  and  is  composed  of  men  who  thoroughly  understand 
their  business.  In  some  chains  the  advertising  department  is 
separate  from  the  other  departments,  while  in  others  it  is  attached 
to  the  merchandising  department.  This  depends  a  great  deal  on 
the  size  of  the  chain  and  the  policy  adopted  in  regard  to  advertis- 
ing. In  some  chains  advertising  is  under  the  direct  control  of 
the  general  sales  manager  who  takes  care  of  sales  in  all  the 
branch  stores.  In  smaller  chains  the  sales  manager  frequently 
handles  the  advertising  himself. 

The  window  dressers  may  or  may  not  be  attached  to  the  ad- 
vertising department.  They  may  be  part  of  the  sales  department 
or  of  the  merchandising  department.  But  in  any  event  the  clos- 
est cooperation  must  exist  between  the  advertising  and  the  other 
departments. 

The  personnel  of  the  advertising  department  may  vary  from 
where  one  man  does  everything,  to  the  large  chains  where  there  is  a 
manager,  an  assistant  who  looks  after  the  copy,  a  research  de- 
partment, an  artist,  several  photographers,  copywriters,  and 
perhaps  the  window  trim  experts.  Some  chains  find  it  profitable 
to  operate  their  own  printing  plant  to  get  out  placards,  notices, 
hand  bills,  price  lists,  circulars,  and  all  the  other  printed  matter 
necessary  in  the  routine  work  of  a  large  chain. 

Where  newspaper  advertising  is  done,  the  ordinary  practice  is 
to  prepare  copy  at  headquarters  and  send  electrotypes  to  local 
managers  for  insertion  in  the  local  papers.  Full  instructions  are 
sent  at  the  same  time  about  the  position  of  the  advertisement,  the 
days  it  is  to  run,  etc.  Naturally  this  newspaper  advertising  is 
closely  coordinated  with  the  weekly  sales  specials  or  whatever 
products  the  company  wishes  to  feature  at  the  time. 

The  branch  manager  is  responsible  for  inserting  the  copy  in 
the   local    papers.     In   some   instances,    branch   managers   are 


1G6  CHAIN  STORES 

allowed  to  write  their  own  copy  and  arrange  for  space.  In 
other  chains  the  branch  managers  are  allowed  a  certain  percent- 
age for  advertising.  In  the  Penney  chain  this  is  two  per  cent. 
Many  chains  employ  a  specialist  whose  duty  it  is  to  buy  space  in 
papers.  They  do  not  care  to  leave  this  to  the  branch  manager, 
whose  experience  in  this  line  is  likely  to  be  limited. 

Counter  cards,  window  display  cards,  signs,  circulars,  hand 
bills,  price  lists,  pamphlets,  etc.,  are  prepared  by  the  advertising 
department  as  a  rule  although  they  may  be  decided  upon  with 
the  sales  or  the  merchandising  departments.  As  a  rule  they  are 
sent  to  all  stores  simultaneously.  The  managers  of  the  Federal 
Bakeries  have  an  opportunity  to  order  what  they  wish  of  sales 
promotion  matter  prepared  by  the  merchandising  department. 

When  advertising  is  decided  on  at  the  central  office,  it  is  usually 
done  by  conference.  Various  plans  are  submitted  and  the  best 
one  chosen.  One  of  the  determining  factors  in  this,  as  in  so 
many  other  chain  matters,  is  the  records  of  what  happened  in 
previous  years  under  certain  conditions.  The  records  tell  not 
only  the  kind  and  character  of  the  advertising,  but  also  the 
products  advertised  and  the  actual  results  obtained. 

It  is  an  excellent  plan  to  call  into  this  conference  members  of 
the  sales  and  merchandising  departments.  Their  suggestions 
can  frequently  be  used  to  advantage  and  objections  are  much 
easier  to  rectify  when  they  come  at  the  beginning  than  after 
everything  has  been  settled  upon. 

It  is  important  to  have  new  ideas,  not  only  because  the  public 
expects  them,  but  because  of  the  stimulating  effect  on  the  whole 
organization.  Not  only  the  public  but  the  personnel  also  feels 
the  benefit  of  a  distinctive  sales  policy. 

Does  Advertising  Pay  the  Chain  Store? — "Of  the  firms  which 
fail  each  year,  84  per  cent,  are  among  the  non-advertisers," 
said  A.  C.  Pearson,  president  of  the  Associated  Business  Papers. 
That  chain  stores  have  not  done  what  is  technically  known  as 
advertising  does  not  mean  that  they  have  not  kept  themselves 
before  the  public.  Quite  the  contrary.  Each  member  store  of 
a  chain  organization  is  an  advertisement  in  itself.  The  old 
customer,  wherever  he  is,  seeks  the  familiar  store  front. 

The  United  Cigar  Stores  say  they  have  never  been  able  to 
tell  whether  advertising  paid  or  not.     On  the  books  it  has  been 


ADVERTISING  167 

the  custom  to  set  it  down  as  a  total  loss  because  it  cannot  be 
traced.  The  Childs  Company  stated  that  as  a  result  of  advertis- 
ing conducted  by  them,  the  average  check  was  brought  up  from 
twenty-five  cents  to  forty-five  cents.  Each  chain  will  have  its 
own  problem  to  face  but  the  issue  in  each  case  will  be  the  same. 
"Good  advertising  consists  in  presenting  your  message  to  as 
many  prospective  customers  as  possible  at  the  most  reasonable 
cost,  and  in  a  way  that  will  attract  their  attention  and  bring 
them  to  your  store." 

There  have  been  costly  mistakes  made  in  advertising  in  the 
past.  At  one  time  advertising  was  considered  as  a  panacea  for 
all  ills.  But  the  chain  store  has  been  reluctant  to  put  faith  in  it 
until  after  it  has  proved  itself.  Consequently  the  movement  on 
the  part  of  the  chain  stores  towards  advertising  is  very  significant. 
Even  the  very  conservative  non-advertising  Singer  Sewing 
Machine  Co.  has  announced  an  advertising  programme,  with 
emphasis  placed  on  the  individual  store.  The  Piggly  Wiggly 
Stores  have  always  shown  pronounced  ingenuity  in  their  advertis- 
ing campaigns. 

Chain  store  advertising  is  yet  in  its  infancy.  It  is  too  early  to 
make  any  definite  statement  about  the  future.  What  little 
advertising  has  been  done  in  newspapers  and,  in  a  few  cases,  in 
national  media,  has  been  encouraging  in  its  results.  Properly 
handled,  advertising  will  help  the  chain  in  the  following  ways: 

1.  Increase  turnover  by  increasing  dentiand  while  stocks  remain  stationary. 

2.  Enlarge  clientele. 

3.  Increase  confidence  in  the  chain  and  its  products — an  inevitable 
result  of  the  right  kind  of  publicity.  Goodwill  is  an  invaluable  asset  for 
the  chain  organization  as  well  as  for  any  other  business. 

The  Media  of  Advertising. — This  brings  us  directly  to  the 
question  of  where  the  chain  should  advertise  to  obtain  direct 
benefits.  There  are,  of  course,  two  main  alternatives  open  to  it. 
The  first  is  national  advertising  and  the  second  is  the  local  papers. 
As  the  chain  advertises  to  the  consumer  the  choice  is  limited. 
As  far  as  national  advertising  is  concerned,  the  field  is  immedi- 
ately narrowed  down  to  the  few  chains  with  national  distribution, 
that  is,  with  branches  extending  over  enough  of  the  territory  of 
the  United  States  to  make  it  profitable  for  them  to  use  such  a 


168  CHAIN  STORES 

medium  of  publicity  as  a  national  magazine.  The  Douglas 
Shoe  Co.  is  a  consistent  advertiser  in  national  periodicals. 
The  United  Drug  Co.  has  also  experimented  in  this  field.  But 
when  the  benefits  are  analyzed,  the  results  in  proportion  are 
seen  to  be  small,  even  for  a  company  with  branches  all  over  the 
country.  A  large  number  of  the  readers  will  not  be  in  a  locality 
where  it  is  possible  to  patronize  the  chain.  Therefore  a  large 
percentage  of  this  advertising  is  bound  to  be  lost.  In  the  second 
place  a  magazine  will  not  cover  the  local  field  in  the  way  the  local 
paper  can. 

The  local  newspaper  offers  the  logical  medium  of  publicity 
for  most  chain  organizations.  Even  here,  the  results  are  likely 
to  benefit  no  particular  link  in  the  chain  but  rather  the  whole 
local  organization.  One  chain  executive  says:  "The  question 
of  advertising  is  very  important.  Chain  stores  render  less  service 
to  their  customers  than  old-time  stores  do:  how  are  they  going 
to  overcome  that  fact?  We  do  it  by  making  our  prices  lower 
and  then  by  telling  everybody  about  it.  We  operate  many 
stores,  some  one  of  which  is  sure  to  be  not  more  than  a  few  blocks 
from  your  house,  no  matter  where  you  may  live.  But  because 
a  chain  store  gets  part  of  everybody's  business  probably  at 
least  once  a  year,  and  because  a  customer  of  No.  5  feels  perfectly 
free  to  stop  in  at  No.  45  if  she  is  out  that  way  and  has  time  to  buy, 
we  have  no  actual  personal  acquaintanceship  with  our  customers, 
such  as  a  small  retailer  has.  We  have  to  shoot  our  advertising 
in  the  air  and  make  it  cover  the  whole  town. 

"We  use  the  local  newspapers.  Some  chains  use  handbills 
or  dodgers.  Recently  some  chains  have  been  issuing  a  weekly 
paper,  containing  advertisements  of  the  week's  'specials'  and 
containing  jokes,  cartoons  and  reading  matter  so  that  the  children 
will  take  the  paper  home.  This  is  a  new  development  in  the 
business  and  merits  consideration." 

The  People's  Drug  Stores,  operating  a  chain  of  twelve  stores  in 
Washington,  D.  C,  used  fourteen  pages,  a  complete  advertising 
section,  in  one  of  the  daily  papers  as  a  means  of  bringing  home  to 
the  public  that  it  was  the  chain's  sixteenth  anniversary.  The 
president  of  the  company,  M.  G.  Gibbs,  stated  that  for  ten  days 
after  the  advertising  appeared  the  company  did  the  largest 
business  in  its  history.     This  is  an  instance  of  an  extraordinary 


ADVERTISING  169 

use  of  newspaper  space,  but,  as  a  general  rule,  chains  use  news- 
paper space  in  varying  quantity.  Some  advertise  every  week; 
some  only  on  special  occasions.  It  is  possible  the  day  may  come 
when  the  chain  stores  will  be  as  lavish  users  of  newspaper  space 
as  are  the  department  stores  today.  Drug  stores  frequently 
take  page  advertisements  for  special  sales.  Grocery  stores, 
with  a  few  exceptions,  do  price  advertising.  As  we  shall  see  later, 
there  is  some  institutional  advertising  done. 

Preliminary  Advertising. — When  any  retailer  starts  a  new 
store  he  wants  as  many  people  to  know  about  it  as  possible. 
He  may  offer  special  inducements  to  get  people  to  come  to  the 
store.  He  may  distribute  handbills  from  house  to  house.  He 
may  do  nothing  at  all  beyond  choosing  a  good  location  and  relying 
on  the  name  over  the  door  and  the  price  display  in  the  window. 
Without  doubt  the  latter  method  is  the  cheapest  but  it  will  not 
reach  all  the  people  who  might  be  considered  as  potential  custom- 
ers. It  is  a  logical  policy  to  put  an  advance  notice  of  the  opening 
in  the  local  paper. 

When  the  Metropolitan  Stores,  Inc.  opened  in  Philadelphia, 
on  the  first  business  day  it  made  69,000  sales  to  40,000  customers. 
It  is  one  of  a  chain  of  five-  to  fifty-cent  stores,  stocking  about 
10,000  different  items.  The  method  used  to  attract  customers  was 
the  insertion  of  the  following  advertisement  in  the  local  papers : 

"The  merchandise  is  all  new.  It  has  been  personally  selected  by 
expert  buyers.  Many  of  the  articles  have  never  before  been  obtainable 
at  these  prices  or  offered  on  the  counters  of  chain  stores. 

"The  merchandise  must  be  seen  to  be  appreciated.  Come  to  our 
opening.  You  will  be  under  no  obligation  to  purchase.  We  want  you 
to  see  the  remarkable  stocks  as  they  stand  complete — to  see  what  is 
possible  for  a  merchandise  organization  such  as  ours,  buying  in  large 
quantities,  to  offer  within  a  selling  range  of  from  five  to  fifty  cents. 

"We  guarantee  satisfaction  to  all  purchasers." 

Advertising  is  a  short  cut.  In  a  comparatively  brief  time  it 
does  what  otherwise  might  take  and  has  taken  years  to  accom- 
plish. The  fact  that  the  Great  Atlantic  &  Pacific  Tea  Co.  did 
not  advertise  does  not  mean  that  another  store,  with  a  location 
equally  good  and  a  stock  equally  low-priced  and  a  manager  with 
equally  good  personality  could  do  the  same  thing.  A  store  which 
retails  to  the  public  must  have  goodwill.     A  large  chain  has  a 


170  CHAIN  STORES 

fund  of  goodwill  already  prepared  to  draw  upon.  A  chain  which 
enters  a  locality  for  the  first  time  must  create  its  goodwill.  The 
success  of  the  Metropolitan  Stores  advertising  was  directly 
mirrored  in  the  number  of  people  who  came  to  the  store  the 
first  day. 

The  method  pursued  by  the  United  Retail  Candy  Stores  when 
they  started  in  New  York  deserves  re-telling.  This  company,  a 
subsidiary  of  the  United  Retail  Stores  Corporation,  and  amply 
backed  with  capital,  planned  to  start  several  stores  in  New  York 
at  once  and  after  these  were  running,  go  on  to  another  large  city. 
The  story  is  told  by  George  A.  Nichols  in  "  Confectionery  Mer- 
chandising" for  August,  1920. 

In  New  York  the  company  secured  leases  for  its  various  store 
buildings  and  then  began  alterations  upon  them  all  at  the  same 
time.  The  yellow  fences  were  built  around  the  front  of  the 
stores.  Upon  these  for  some  time  there  was  no  wording  what- 
ever. Then  one  morning  on  every  fence  there  appeared  the 
slogan  "Happiness  in  Every  Box."  Thereupon  ensued  a  guess- 
ing contest.  Everybody  wondered  what  would  be  in  the  box. 
The  guesses  ran  all  the  way  from  face  powder  to  cigarettes. 

The  fact  of  the  matter  was  that  the  candy  chain  saw  in  those 
fences  a  wonderful  opportunity  for  some  real  outdoor  adver- 
tising. They  might  have  followed  the  stereotyped  plan  and  have 
put  on  the  boards  an  announcement  to  the  effect  that  the  United 
Cigar  Stores  were  now  going  into  the  candy  business  on  a  large 
scale  and  that  in  a  short  time  a  store  would  be  opened  in  that 
location.  But  this  was  an  unusual  undertaking  and  the  ordinary 
methods  of  advertising  would  not  answer.  Something  was 
needed  to  keep  the  interest  up  until  the  time  for  the  store  to  open. 

The  slogan  was  presented  in  various  guises  for  two  or  three 
weeks  and,  then,  the  billboards  one  morning  contained  a  big 
announcement  telling  what  it  was  all  about.  A  candy  store 
was  to  be  opened  there  on  a  certain  date.  "Happiness  in  Every 
Box"  meant  happiness  for  everybody  in  the  family.  The  bill- 
board, therefore,  contained  pictures  of  happy  smilling  faces  of 
people  from  babies  up  to  old  age.  It  was  explained  that  the 
store  would  be  part  of  a  nation-wide  system  of  fine  candy  stores 
and  candy  factories  planned  to  being  candy  quality,  candy 
purity    and    candy  goodness  direct  to  the   consumer  without 


ADVERTISING  171 

extravagance  or  high  prices.     This  was  followed  up  with  adver- 
tisements in  the  newspapers. 

To  conclude,  when  a  chain  store  decides  to  enter  a  new  locality, 
it  has  the  following  possibilities  of  publicity  to  choose  from: 

(a)  Location 

(6)  Window  trims 

(c)  Window  pasters 

(d)  Outdoor  advertising,  cards,  etc. 

(e)  Moving  pictures 

(/■)    Advertising  in  local  newspapers 

{g)  Distribution  of  hand  bills,  pamphlets,  etc. 

The  first  methods  are  dependent  for  their  efficacy  upon  cus- 
tomers passing  by  the  store.  Thus  the  value  of  passive  forms  of 
advertising  is  almost  wholly  dependent,  apart  from  the  intrinsic 
merit  of  the  display,  on  the  number  of  people  passing  the  spot. 
Outdoor  signs,  of  course,  do  not  have  to  be  placed  directly  on 
the  site  of  the  chain  store,  and  there  is  no  limitation  on  number, 
beyond  expense  and  local  ordinances  governing  their  erection. 
The  non-advertising  chains  usually  have  excellent  locations  and 
feel  that  they  can  do  without  this  extra  expense. 

The  active  forms  of  advertising,  that  is,  local  newspapers  and 
house-to-house  distribution  of  sales  and  advertising  literature, 
brings  us  directly  to  the  following  section,  namely,  the  appeal  and 
purpose  of  the  advertising.  The  chain  itself  must  decide  by 
actual  experience  which  forms  are  the  best  to  use.  Probably  it 
will  be  best  to  combine  several.  The  window  trim  may  be 
regarded  as  essential  in  any  case.  The  Piggly  Wiggly  arrange- 
ment whereby  customers  look  directly  into  the  store  is,  in  effect, 
a  novel  method  of  window  trimming.  Newspaper  advertising 
should  pay  for  itself,  especially  where  the  store  is  a  new  one  and 
people  not  in  the  habit  of  going  there. 

The  Advertising  Appeal. — Chain  store  advertising  falls  natur- 
ally into  two  classes:  Institutional  advertising  and  merchan- 
dise advertising. 

1.  Institutional  Advertising  tells  about  the  chain  organization, 
its  methods,  etc. 

Figure  20  shows  one  of  a  series  of  advertisements  of  the 
Waldorf  System,  Incorporated,  operating  a  chain  of  self-service 
lunch  rooms,  which  was  run  in  the  newspapers.     The  advertise- 


172 


CHAIN  STORES 


ment  appeared  in  a  different  Boston  paper  each  day  during  the 
week,  that  is  the  same  advertisement  came  out  in  a  different 
paper  daily.  Two  weeks  after  the  insertion  of  an  advertisement 
in  the  Boston  papers,  the  same  advertisements  were  started  in 


1  doBT  tuppoM  you  itallt* 

ara      rushlnc      around       lOlns 

many     of    thoM      t>eopl«     buy 

t>«cauM  th«y  haT«n*t  tini«  :o 
(o    lo    anotber    storal" 

•aid    L    •uq)iclou«lr. 

•TTtir.  (^«  "Waldorf  LoncH  1 
Good,  whol««oin«  food  aervfd 
oulckly  —  no  detaya  —  ihe«- 

on«   errand    to   b«  doaa.      Vou 

can  («ll  Uioaa  aboppera  th« 
'\i'a1dorf  Way*  to  double 
Hl^i*"-     noon-how       aboppios 


Le  Mar^chal  Foch  and 
The  Generals- 


Plus- 


Oood  _U«a,    OK  —  bot 


bodr's  yam.  I  felt  u  tiioucD 
Id  b««n  trIckMl  Into  doinc  If. 
yon  we.  I  eat  Ituicb  at  the 
Waldorf     almost     every     day 

But     my     reason     for    tatlns 


I    knoev    that    WaUorf    never 

-— f    hind    of    food    rub- 

.that,  Waldorf    hash 

toes  wrapped,  ready  for  the 
pans  In  Individual  waxed- 
paper  luckases^  and  that  Val. 
dorf    poached    e(cs    are    freab 


And    I    knoer     that     Waldorf 


Airplanes — taiiks — shi^s — were  each  at  one  time  or 
another  "going  to  win  the  war."  But  what  really  won 
the  war  was  the  united  organization  of  experienced 
conunanders  plus  the  efficiency  of  the  combined  forces 
they  trained  and  directed. 

And  that's  exactly  what  makes  every  Waldorf  Lunch 
Bucce.'ssful  in  the  undeviating  Waldorf  purpose  to 
maintain  worthy  dining  places  for  the  quick,  courteous 
and  economical  service  of  appetizing  food. 
The  Waldorf  System  Incorporated  today  is  a  great 
Allied  Army  in  the  service  of  the  public — the  alliance 
of  four  other  successful  chains  of  modem  lunch  rooms 
with  the  Waldorf. 

All  of  the  "generals"  in  this  Waldorf  organization — 
the  president  and  each  of  the  men  who  are  vice  presi- 
dents— and  operating-managers — have  had  years  of 
practical  experience. 

Today  the  Waldorf  System  Incoriwrated  is  acknowl- 
edged by  men  who  know  to  be  better  organized  and 
administered  than  any  other  chain-restaurant  corpora- 
tion in  the  country.  That  means  not  only  exceptional 
quality  but  exceptional  economy  for  you — at  lunch 
time,  for  instance. 

jM&loif  tjUfMeni  Sncoifxouded 

£aeCHIiro  Ogiet* — 169   High  Street,   BoUon 


n*  Ellbtr-Elgbl   Lunck    RoOKV   Operaieel  liy  iIk   Waldorf  Sysum,  lac 
mrt  located  la  the  TollowiBa  ciUcsi 


CHELSEA 

ERIE 

EVERETT 


;d<;E  HARTFORD 


ato  located  la  the  TollowiBs  ciUcsi 
29  IN  BOSTON 

.-"-ti..,  jk  PAMTUCKET 
MANCHESTER  (R  H )  QTO  PROVIDENCE 
— i^-**-.— ^  ROCHESTER  (! 


LAWR£NCE 
LOWELL 


NEW  HAVEN 


SAL£M 

SCHENECTADY 

SPBINCFIELD 

SYRACUSE 

TROY 

WALTHAM 

WATERBURY 

WORCESTER 


Fig.  20. — A  good  example  of  institutional  chain  advertising. 


fifteen  outside  cities.  The  idea  behind  this  is  that  many  people 
outside  Boston  read  the  Boston  papers,  and  that  these  people 
will  see  the  advertising  when  it  appears  in  these  papers.  Two 
weeks  later  they  would  see  the  advertisement  in  their  own  home 
town  paper  and  by  force  of  repetition  the  advertising  appeal 
would  be  so  much  the  stronger. 

This  is  strictly  institutional  advertising.     It  does  not  aim  to 


ADVERTISING  173 

sell  any  goods  or  increase  the  sales  of  any  one  store.  It  is  designed 
to  present  to  the  public  the  idea  of  the  system.  It  will  serve 
eventually  as  a  background  on  which  merchandising  advertising 
to  increase  the  sales  of  some  of  its  products  can  be  done. 

There  is  nothing  cheap  about  the  make-up  of  this  advertise- 
ment, as  is  the  case  with  so  much  newspaper  advertising.  This 
goes  as  far  towards  quality  advertising  as  is  possible  in  a  news- 
paper. The  eye  is  instantly  attracted  by  the  decorative  border 
and  the  novel  introduction  of  a  column  of  reading  matter  by  the 
side  of  the  regular  advertisement. 

The  Piggly  Wiggly  Co.  has  set  out  to  sell  the  public  the  chain 
store  idea  and  more  specifically  the  Piggly  Wiggly  Co.'s  own 
methods  of  self-service  operation.  Too  many  people  believe  the 
sole  advantage  of  the  chain  is  its  lower  price. 

The  following  is  an  example  of  Piggly  Wiggly  advertising: 

"Piggly  Wiggly  is  a  system  of  merchandising  that  provides  every  house- 
keeper with  a  well-ordered  pantry  that  she  can  go  to  any  time  between 
7  a.m.  and  6  p.m.,  Saturdays  until  10  p.m.,  and  there  select  with  her  own 
hands  those  articles  of  food  that  she  may  of  her  own  mind  want  to  select. 
More  than  one  thousand  different  items  are  to  be  found  in  every  Piggly 
Wiggly  store. 

"  Money.  You  save  from  10  to  20  per  cent  on  every  article  purchased  at 
Piggly  Wiggly.  A  regular  patron  will  save  from  $8  to  $30  a  month  without 
sacrificing  either  quantity  or  quality. 

"Time.  You  save  time,  energy,  and  patience  as  you  wait  on  yourself 
and  don't  have  to  ask  the  price  of  any  article,  as  a  swinging  price  tag  indi- 
cates the  price.  Y'ou  don't  have  to  ask  about  any  article,  as  only  nationally 
known  products  are  to  be  found  on  Piggly  Wiggly  shelves.  You  don't 
have  to  listen  to  Mrs.  Hard-To-Please  or  Mrs.  Haggler,  as  they  have  no 
one  to  argue  with. 

"  Health.  The  most  precious  thing  in  the  world.  Y'ou  can  see  with  your 
own  eyes  that  the  goods  are  clean,  that  the  surroundings  are  clean.  Some 
of  the  goods  are  in  air-tight  cartons,  others  are  weighed  and  sealed  in  pack- 
ages of  different  weights  by  automatic  machines  without  a  human  hand 
touching  them." 

The  above  is  a  good  example  of  what  a  live  chain  can  do  in  the 
way  of  advertising.  It  aims  to  make  permanent  customers 
rather  than  transient  customers  attracted  merely  by  the  price 
feature  of  the  week. 

•  Some  of  the  headlines  from  the  Piggly  Wiggly  advertising  are 
interesting  as  showing  the  continued  stress  on  novelty  and  arous- 


174 


CHAIN  STORES 


ing  the  interest  of  the  pubhc — so  contrary  to  ordinary  chain 
advertising  poHcies.     Some  of  them  read  as  follows: 

Hallelujah — Triplets  at  Last. 
A  Royal  Princess  is  to  be  Born. 
1492 — A  Memorable  Day  it  Was. 
The  Piggly  Wiggly  Price  List. 
Music,  Flowers,  and  Women. 
The  Piggly  Wiggly  Beauty  Contest. 
Something  is  Going  to  Happen. 


iet 

lual 

line 
ibu. 
ects 


YDU  CAN  ALWAYS 
SAVE  MONEY  BY  WEARING 

WL  DOUGLAS  SHOES 

SOLD  DlRia  FROM  FACTORY 

TO'VDUArONEPROFn' 


^^ 


STAMPING  THC  RETAIL  PRIO;  f 
ATTXtrACTORY 


L.  DOUGLAS 


$7S2  &  $822  SHOES  J^ 


FORNfEN 

WOMEN 


ALSO  MANY  STYLES  AT 


WHEN  YOU  BUY  W.  L.  DOUGLAS  S^iOES 
CONSIDER  THE  EXTRA  QUALITY  YOU 

RECEIVE  FOR.  THE  PRJCL  PAID 
WL  J)oucIas  shoes  are  made  of  the  best  emd  finest 
selected  leathers  the  meirket  aff  ords.We  employ 
the  highest  paid,skilled  shoemakers,  all  working 
vnth  an  honest  determination  to  tnalie  the  best 
shoes  for  the  price  that  money  can  buy. 
Wken  you  need  shoes  look  for  a  W.L.  Douglas 
store.  We  own  108  stores  located  in  the  principal 
cities.You  will  find  in  our  stores  many  kinds  and 
styles  of  high-class,  fine  shoes  that  we  believe 
are  better  shoe  values  for  the  money  than  you 
can  buy  elsewhere.Our  $  7.00  and  $8.00  shoes 
are  exceptionally  good  values.  There  is  one 
point  "we  wish  to  impress  upon  you  that  is 
worth  dollars  for  you  to  remember.    W.  L. 
Douglas  shoes  are  put  into  ail  of  our  stores  at 
factory  cost.    We  do  not  make  one  cent  of 
profit  until  the  shoes  axe  sold  to  you.  When 
you  buy  shoes  at  any  one  of  our  stores  you 
pay  only  one  smaJI  retail  profit. 
No  matter  where  you  Utc,  shoe  dealers  can 
supply  you  with  WL.Douglas  shoes.  They  cost 
no  more  in  San  Francisco  than  they  do  in  New^ 
York.Insist  upon  having  W.L.Douglas  shoi 
with  the  name  and  retaO  price  stamped  on 
the  sole.    Do  not  take  a  substitute  and  pay 
one  or  twoextra  profits.    Order  direct  from  «r.l'^SL«C«*u 

the  factory  and  save  money.  Sio  Spark  st,Brctkttii.Mtm, 


«4.00i««0 


W.  L.  DoDsrlas  name 
and  poi-trait  Is  the  t>eet 
known  shoe  Trade  Mark 
in  the  world.  It  stamh 
for  the  highest  standard 
o(  qnalitj  at  the  lowest 
OBsible  cost. 


Cat»loc  Free, 


Fig.  21. — Type  of  national  advertising  done  by  W.  L.  Douglas  Shoe  Co. 


Each  of  these  headlines  is  designed  to  attract  interest.  Only 
one  of  them  mentions  price.  All  of  them  are  selected  to  attract 
the  attention  of  the  reader. 

2.  Merchandise  Advertising. — This  is  confined  mainly  to 
emphasis  on  price.  Figure  21  shows  the  form  of  advertising 
used   by   the   W.   L.    Douglas   Shoe   Co.,    a   form   which 


ADVERTISING 


175 


WEEK  END  MARKET  SPECIALS 


PORK 


PORK  LOIN  ROAST 

4  to  6-lb.  Cuts 

Cut  from  Young  Corn  Fed  Pigs 
Va  or  whole  strip 

CHOPS  ""^nI?""  lb,  27c 


19 


lb. 


BEEF 


QUALITY  CORN  FED  ROASTS 
BONELI88  CHUCK 

Bgn.fM,   sirloin |h.  sge 

Rib  Ronu   lb  soc 

^"•^""'np    lb.  27« 

Chucli    ROMt lb   180 


20 


SWEET  FLORIDA  ORANGES.    Good  Size,  Doz.  32o 

C 

lb. 


STEAKS 


auality  Corn  Fed  B«s(,  All  Roand, 

Sirioin  or  Face  Romp 
Porterhouse,  Ramp  or     4AC 
Top   Roond lb.  w9 


27 


LARGE  RIPE  YELLOW  BANANAS 

FISH 


Doz.  3Sc 


BUHER 

MEADOWBROOK 

CREAMERY 

Cut  From  Tub 

OUR     A  Co  '"• 
BEST    HrOC 


steak  Cod lb.  15c 

Shore  Haddock.. lb.  lOe 
■£ape  Soaliopt..pt.  35c 
Rallbit  to  try  or  boil, 

lb .....25c 

Cod  Biti 2  lbs.  2So 


NEW  EGGS 

The    Famous 
Meadowbrook  Brand 

60c  Doz. 

SAVE  lEc  DOZ. 


FRESH  LEAN  CHOPPED  STEAK.  2  lbs.  25c 


BEEF 


MOHICAN  MILD  CURED 

Boneless  Stickers 

Thick  Ribs  20c  lb.  Uan  Flanks  To 


1212 


HEINZ  BAKED  BEANS  10c  Can.  Reg.  Pr.  ISc 


FOWL 


FRESH  KILLED 
MILK  FED 

21/2  to3-lb.  Av. 


31 


POUNDCAKE 
C 

lb. 


Dark  Frilt 
Plain 
Marble 
Raisin 


25! 


COFFEE 

Inner  Bl«n( 

25" 


Mohlean  Dinner  Blend 
In  Bean  or 
ground  to 
suit,  L  %f  lb. 


OLEO 

m 


Swift's 
Premium 
Gem  Nut 
2  lbs.  49« 


ROXBURY 

2152Wasbin|ton 

WALTHAM 
211  Moody  St 


Mohican 

MARKETS      I 


BOSTON 

96Wsshinston 

SO.  BOSTON 

423WestBroadway 


Fig.  22. — Common  form  of  local  newspaper  price  advertising. 


176  CHAIN  STORES 

been  used  by  them  for  many  years  both  nationally  and  in  local 
papers.  The  price  appeal  is  stressed,  with  quality  and  durability 
slightly  second. 

Figure  22  shows  the  most  common  form  of  chain  advertising, 
namely  a  price  list.  This  particular  advertisement  is  arranged  so 
that  certain  items  stand  out  more  than  others. 

When  it  is  a  case  of  institutional  advertising,  the  same  copy 
may  be  used  in  many  cities,  in  fact  everywhere.  The  appeal  of 
the  copy  is  universal.  But  when  it  comes  to  merchandise  ad- 
vertising a  new  element  enters  the  equation.  Conditions  are 
frequently  not  the  same  in  different  cities.  For  example,  take 
the  case  of  a  cigar  store  chain.  In  some  cities  it  has  to  compete 
with  local  cigars  which  prove  very  strong  competition.  The 
character  of  the  local  advertising  must  take  this  into  considera- 
tion. Again  the  wants  of  the  community  vary.  The  stock  of  a 
store  in  New  York  would  be  different  than  that  of  one  in  California 
or  Florida.  Thus,  the  character  of  the  merchandise  advertising 
depends  a  great  deal  on  the  size  and  distribution  of  the  chain 
branches,  and  also  on  the  policy  of  the  company. 

One  shoe  chain  standardizes  all  its  advertising  while  one  of  its 
direct  competitors  allows  the  local  manager  to  spend  a  certain 
amount.  The  result  is  that  the  former  concern  has  a  great  deal 
to  show  for  its  advertising  while  the  latter  concern  has  never 
been  able  to  teach  its  salesmen  to  be  successful  advertising 
copy  writers. 

Advertising  Policies. — The  advertising  agency  has  taken  a 
definite  place  in  the  merchandising  program  of  the  average 
manufacturer,  but  its  place  in  the  chain  field  is  not  yet  clearly 
marked.  Most  agencies  show  a  tendency  to  keep  away  from 
local  copy  and  much  of  the  chain  store  advertising  is  necessarily 
local  copy.  The  advertising  should  always  be  governed  to  a 
great  extent  by  the  particular  facts  as  they  exist  in  the  various 
communities.  Institutional  advertising  for  chain  stores  has 
been  handled  and  is  handled  in  excellent  fashion.  But  when  it 
comes  to  merchandise  advertising,  the  chain  management  seems 
to  prefer  someone  directly  connected  with  the  organization  and 
its  conditions  to  do  the  work. 

If  the  appeal  of  the  advertising  can  be  universal,  the  agency  can 
be  used  to  advantage.     If  it  is  necessary  to  watch  local  con- 


ADVERTISING  177 

ditions,  it  would  hardly  be  economical  to  use  an  agency,  on 
account  of  the  money  expenditure  which  would  be  required  to 
ascertain  the  exact  local  conditions.  The  chain  itself  is  in  a  far 
better  position  to  do  this. 

The  chain  may  find  it  advisable  to  employ  a  contact  man  to 
look  after  local  conditions  and  to  keep  traveling  constantly  with  this 
purpose  in  view.  By  means  of  sales  records,  the  management  is 
in  a  good  position  to  judge  the  strength  of  the  competition,  and 
the  contact  man  verifies  the  opinions  of  the  local  managers  and 
analyzes  the  situation. 

The  chain  is  constantly  facing  the  following  problem  in  its  pub- 
licity: it  wishes  to  find  a  basis  of  publicity  common  to  all  stores, 
yet  it  must  take  into  consideration  the  status  of  affairs  in  the 
various  cities  and  towns  where  the  stores  of  the  company  are 
located.  Each  local  manager  doubtless  knows  best  what  condi- 
tions are,  but  that  local  manager  is  not  an  advertising  man  and 
never  will  be.  He  is  hired  as  a  salesman  and  unless  he  is  a  sales- 
man first,  last,  and  always,  he  is  not  going  to  make  good  on  his 
job.  But  for  the  very  reason  that  he  knows  local  conditions  so 
well,  he  may  not  be  able  to  analyze  them  so  well  as  an  outsider. 
Hence,  the  value  of  the  advertising  agency  as  a  specialist  in  adver- 
tising problems  as  contrasted  with  selling  problems. 

Some  chains  have  tried  a  scheme  whereby  the  advertising  is 
blocked  out  at  headquarters  and  space  left  for  the  local  manager 
to  insert  local  copy.  At  best  this  is  dangerous  policy  because  the 
local  manager  may  or  may  not  be  competent  to  do  this.  Some 
chains  have  a  number  of  advertising  men  attending  to  districts. 
If  competition  is  particularly  strong  in  some  city,  they  have 
authority  to  run  advertising  more  frequently.  They  take  care  of 
all  space  buying  and  positions  in  the  papers. 

Cooperative  Advertising. —  With  the  closer  contact  between  the 
chain  store,  as  a  retail  outlet,  and  the  manufacturer  has  come 
the  question  of  cooperative  advertising.  Both  the  chain  and 
the  manufacturer  stand  to  benefit  by  this.  Figure  23  shows  the 
method  in  which  the  manufacturer's  product  and  the  chain's 
product  were  tied  up  together  in  a  window  trim.  This  was  a 
direct  outcome  of  the  growing  policy  of  manufacturers  to  spend 
thousands  of  dollars  to  get  retailers  to  cooperate  and  concentrate 
in  a  selling  campaign. 

12 


178 


CHAIN  STORES 


One  progressive  chain,  and  the  same  facts  hold  true  in  other 
cases,  gets  a  special  discount  from  some  manufacturers,  especially 


Fig.  23. — Form  of  cooperative  window  advertising. 


of  a  hitherto  unknown  item,  to  cover  part  of  the  cost  of  the 
advertising.  "  Every  week,"  says  this  chain,  "we  have  a  full  page 
in  the  three  local  papers  and  two  columns  in  the  paper  of  each  of 
the  towns  in  which  we  have  a  store.     Part  of  this  space  is,  of 


ADVERTISING 


179 


OUR  BIG  FALL 

CANNED  GOODS 

SALE 

35/0  OFF! 


BIG  slocks— BEST  good.— LOWEST 
prices.  Fint-ehoice  of  the  new  1921 
pack— «t  354,  off  1920  costs. 

These  prices  make  Early  Buying  PAY! 


Com 


can  10c 


Tomatoes 


D«s«aS1.73     Cm 


15c 


Com 


frr'""  16c 


T^      ■  "Golden  Ro^"         O  O  -. 

1  omatoes  Doz.  $2.69  "<?;.'  Zoc 


Com 


CaUu  Butes 


can  20c 


Peas 


Fuo  Sw»l  Wi» 


14c 


String  Beans 


17c 


String  Beans    i°^i'i%    25c 


Peas 


'■15»j        can  23c 


SeJmon 


taU< 


lOc 


Tomatoes  do°,''-?'...cL'  lOc 


Tomatoes  Dorjitfa"^/  15c 

Cond.  Milk  "Standard"  Can   16c 


Sedmon  d:. 


tell  can  25c 


Salmon 


•40c' 


■■25c 


Evap.  Milk   '^^^^  can  Ilk 


Peaches  ^'"'i;""T't9"'  can  22c 
Pineapple  sii«d"Do"n  «"»5  No.  2  cai  24c 
Pineapple  c^^^'S^'A'tiA,  No.  2  can  21c 
Pears  FancjNew  York  6  for  $2.23  cai  3Sc 
Sardines  '^*.t"$i~7"'  can  12Jc 
Raspberries  or  Strawberries    j,'^    30c 


Spinach  ^SI.ITHk'^  No.  3  can  20c 
Aspzutigus  Tips  6  for  $2.03  rufcu  35c 
Pork  &  Beans,  "g:!i*",5"n"  oi?  19c 
Pork  &  Beans,  "^^'J.-STs  "S:.'  He 
CrabMeatl  lb. can  38c  1  lb.can  75c 
Sauerkraut,     6  for  88c     can  ISc 


'M 


CHEESE  lb.  29« 

White  or  Young  America  Type 


EGGS 


"Pine  GroTe" 

FucT  Selected    T^^nr 
■Wni.  Elliott"  Extra  Fancr  Fresh,  Doz.  «9c 


All  ot^e^  prices  guaranteed  for  the  entire  week. 


^mwfm  B  f%  "Golden  Rose"  Finest  Selection,  Delicious  Flavor,  Air-Tigbt 
I  jKA^  Packages.  OOLONG,  MIXED  OR  ENGLISH  BREAKFAST 
■  ^r%\0     (ORANGE  PEKOE  CEYLON.   Lb.  49c) 


45c 


Coffee'S?-''lb.  29c|CoffeeALSES-  lb.  39c 


A  Choice  Old  Coffee  At  PopuUr  Pric* 


Perfect  Blend  Old  Crop  Coffe* 


MACAROON  SNAPS  ^^pT.  .  w . 

S«M  Pric*  tor  Thu  W««k 


aad  flavored  witb 


lb.  19c 


PRIINFS  ^"^  Crop,  Fancy  Santa  Claras, 


Several  Cars  Just  Received 


14c  h  67c 


Milk  Bread, 


"Golden  Rose"  in  Wax  Paper      Large  Loaf    1  Ol>, 
From  Our  Own  Daylight  Bakeshop    1  lb.  5  oz.     1  ^2C 


TheGlNTEItGx 

Stores  Everywhere -Boston  and  Suburbs 

Watch  Ginter  Co.'s  Newspaper  Advcttisenwnt   in  Boston   lepers 
for  our  Spedal  Weekly  Sales 


Fig.  24. — Counter  leaflet  featuring  price. 


180  CHAIN  STORES 

course,  given  over  to  whatever  the  new  item  may  be,  to  a  new 
brand  of  canned  meat,  of  a  pumpkin  flour,  or  a  pancake  syrup, 
etc.  Chain  stores  demand  all  the  discounts  they  can  get  and  we 
are  close  buyers.  This  saving,  small  in  itself,  is  of  considerable 
importance  when  figured  over  the  period  of  a  year." 

Although  this  movement  has  not  attained  as  yet  any  wide 
proportion,  it  is  always  worth  while  watching  developments,  ready 
to  take  advantage  of  them  when  favorable  opportunity  offers 
itself. 

As  an  example  of  a  possible  method  of  advertising,  the  hand- 
bill has  been  occasionally  tried.  This  may  be  distributed  from 
house  to  house,  wrapped  up  with  merchandise,  or  left  on  the 
counter  for  the  customer  to  pick  up.  Figure  24  shows  an  excel- 
lent example  of  such  a  handbill,  in  this  case  got  out  weekly  by  a 
the  central  office  and  delivered  to  the  stores. 

Conclusions. — Poor  as  the  average  advertising  of  the  chain 
store  has  been,  it  has  been  immeasurably  better  than  the  average 
of  its  independent  competitors.  This  independent  has  been  at 
a  tremendous  disadvantage  for,  with  the  exception  of  very  small 
communities,  it  did  not  pay  to  advertise  in  the  papers.  In 
some  cases,  it  has  been  attempted  to  overcome  this  handicap  by 
a  cooperative  campaign  with  a  slogan  such  as  "Patronize  Your 
Neighborhood  Store."  But  whatever  effect  such  a  campaign 
may  have,  it  can  never  become  dangerous  to  the  chain  until  the 
neighborhood  store  is  able  to  compete  with  the  chain  on  its  own 
ground  of  price. 

The  future  of  chain  advertising  will  be  directed  towards  the 
chain  competitor  rather  than  towards  the  independent.  Chain 
advertising  is  yet  in  its  infancy.  Chains  are  only  just  beginning 
to  feel  the  necessity  of  advertising.  Previously  sales  have  come 
in  without  the  necessity  of  spending  money  on  publicity  to  make 
them  come  in.  In  the  same  way  that  chains  are  extending  their 
services,  they  are  extending  their  advertising.  Customers  must 
be  induced  to  enter  the  store  and  if  they  do  not  pass  the  store  in 
sufficient  numbers  to  secure  adequate  turnover,  the  advantages 
offered  by  the  chain  must  be  conveyed  through  some  advertising 
medium,  such  as  the  local  newspaper. 


CHAPTER  XII 
ORGANIZATION 

Outline 

The  chain  store  executive. 

1.  Characteristics. 

(a)  Started  chain  himself. 

(6)  Rose  from  ranks. 

(c)   Possesses  executive  qualifications  in  high  degree. 

2.  Functions. 

(a)  Supervisory. 

1.  Follows  up  store  records,  sales,  etc. 

2.  Sees  that  all  parts  of  machinery  function  properly. 
(6)   Initiatory. 

1.  Expansion  program, 

2.  Merchandising  policies. 

3.  Miscellaneous. 

3.  Sources  of  information. 

(a)  Digested  records. 

(b)  Able  assistants. 
The  district  manager. 

1.  Functions. 

(a)  In  charge  of  group  of  stores. 

1.  Travels  and  visits  each  at  regular  intervals. 
(6)   Supervises  taking  of  inventories,  etc. 

(c)  Consults  about  disposal  of  stock,  etc. 

2.  Requisites. 

(a)  Loyalty  and  honesty. 

(6)   Ability  to  teach  from  own  experience. 

(c)    Thorough  knowledge  of  merchandise  and  its  adaptation, 

1.  To  needs  of  community. 

2.  To  time  of  year,  day  of  week,  etc. 
The  store  manager. 

The  clerk. 
Specialized  functions. 

1.  Buyer. 

2.  Window  trimmer.   . 

3.  Realty  expert. 

4.  Advertising  manager. 

5.  Accountant. 

6.  Merchandiser. 

181 


182  CHAIN  STORES 

"Remuneration  of  personnel. 

1.  Executives. 

(a)  Paid  out  of  profits  or  gross  sales. 

2.  Managers. 

(a)  Fixed  minimum  salary. 

(b)  Bonus  on  volume  of  sales  above  minimum. 

3.  Clerks  and  salespeople. 

(a)  Flat  rate. 

1.  Poorest  results. 

(b)  Some  form  of  commissions  payment. 

1.  Immediate  improvement. 
Methods  of  payment. 

1.  From  home  office. 

2.  By  local  manager. 

(a)  From  contingent  fund. 


CHAPTER  XII 
ORGANIZATION 

The  greatest  strength,  of  the  chain  store  and  its  greatest  weak- 
ness He  in  the  character  of  the  personnel.  Few  executives  have 
shown  greater  foresight,  greater  financial  ability,  or  greater 
merchandising  sense  than  the  executives  of  the  great  chain 
systems.  Woolworth,  Kresge,  Whelan,  and  Penney  are  names 
to  conjure  with  in  the  business  world.  If  it  is  true  that  the 
success  of  their  respective  chains  is  due  to  system,  it  was  also 
true  that  they  created  the  system,  and  that  without  their 
guidance,  the  phenomenal  growth  of  these  particular  chains 
would  not  have  taken  place. 

But  the  weakness  of  the  chain  is  equally  apparent  when  the 
last  links  in  the  chain  store  are  reached,  that  is,  the  clerks. 
Where,  in  the  majority  of  cases,  goods  are  sold  which  require 
no  sales  effort  on  the  part  of  the  clerk,  it  has  seemed  superfluous 
to  expect  intelligent  cooperation  along  sales  lines  from  these 
people.     Yet   this    assumption    has    always    proved    mistaken. 

However  little  attention  on  the  part  of  the  clerk  is  required 
to  sell  the  goods,  courtesy  and  service  have  been  found  to  exert 
a  tremendous  influence.  And  it  is  undeniably  difficult  to  handle 
these  clerks  from  a  central  office,  perhaps  hundreds  of  miles 
away,  even  through  the  medium  of  a  store  manager,  and  the 
supervision  of  a  district  manager. 

The  sharper  the  competition,  and  the  greater  the  price  appeal, 
the  stronger  becomes  the  tendency  to  lay  stress  on  methods  and 
not  men.  If  all  the  initiative  is  mobilized  at  headquarters,  and 
managers  and  clerks  become  mere  automatons,  ambition,  per- 
sonality, and  the  progress  of  the  chain  through  its  branches  is 
retarded,  if  not  stopped  altogether. 

The  Executive  Functions. — There  are  some  very  definite 
points  which  appear  at  first  sight  in  regard  to  chain  store 
executives: 

183 


184  CHAIN  STORES 

1.  They  have  risen  from  the  ranks.  They  started  behind  the 
counter  and  learned  the  business  from  the  ground  up. 

2.  They  rarely  shift  positions,  except  perhaps  to  start  in  for 
themselves. 

3.  The  road  to  promotion  is  clearly  marked. 

In  the  United  Cigar  Stores,  a  man  starts  in  as  clerk,  becomes 
store  manager,  then  district  sales  manager,  superintendent,  and 
finally  assistant  vice-president  with  membership  in  the  direc- 
torate and  title  of  vice-president.  This  company  follows  a 
conscious  policy  of  building  up  executive  ability.  For  example, 
the  directorate  is  composed  of  the  chairman  of  the  board,  the 
president,  the  acting  president,  and  fourteen  associate  directors, 
each  one  of  whom  is  at  the  head  of  a  department.  According  to 
President  Wise,  their  fundamental  need  is  capable  executives,  and 
he  says  this  is  especially  true  of  an  organization  divided  into  such 
a  large  number  of  units,  each  of  which  functions  as  an  individual 
entity.  Thus  this  company  finds  proper  management  possible 
only  when  the  board  functions  directly  through  the  heads  of 
the  departments. 

The  United  States  is  divided  by  the  company  into  five  districts 
and  each  district  is  put  in  charge  of  an  assistant  vice-president 
who  is  traveling  constantly.  Directly  under  them  are  the  district 
sales  managers  who  are  in  much  closer  touch  with  local  stores  and 
conditions. 

The  number  of  necessary  links  between  the  executive  and  the 
retail  store  ordinarily  varies  directly  with  the  size  of  the  chain. 
As  long  as  it  is  possible,  the  chief  executive  keeps  in  touch  with 
member  stores,  but  as  soon  as  the  stores  multiply  his  information 
concerning  them  must  be  gathered  by  intermediate  links  who, 
in  addition  to  performing  policing  functions,  sift  information  and 
deliver  it  to  the  central  office. 

In  general,  the  executive  functions  of  the  head  of  a  chain 
store  system  are  two: 

1.  He  must  supervise  the  machinery  which  he  himself  or 
others  have  set  running.  He  must  see  that  nothing  gets  out  of 
order;  he  must  follow  up  indications  on  the  daily  executive 
report;  he  must  be  the  court  of  last  resort  in  case  of  dispute. 

2.  He  must  initiate  ideas  and  sift  out  the  best  schemes  from 
all  those  submitted  to  him  by  his  subordinates.  Ideas  count  in 
chain  store  organizations  as  everywhere  else.     The  continued 


ORGANIZATION 


185 


186  CHAIN  STORES 

success  of  a  chain  store  must  always  be  modeled  on  its  ability 
to  keep  one  step  in  advance  of  its  independent  competitors,  and 
the  ultimate  responsibility  for  this  rests  on  the  shoulders  of 
the  executive. 

Owing  to  the  policy  of  promotion  employed  in  chain  systems, 
namely,  that  of  merit,  it  is  rare  to  find  a  chief  executive  who  is 
not  surrounded  by  a  group  of  able  men.  Figure  25  shows  the 
apportionment  of  the  various  operating  functions  in  a  Canadian 
grocery  chain. 

The  executive  of  the  chain  has  two  methods  of  getting  informa- 
tion, the  one  supplementing  the  other: 

1.  From  the  daily  records,  which  keep  track  of  stock  and  sales, 
allow  leaks  to  be  traced,  and  help  train  clerks  in  habits  of  accuracy 
and  honesty. 

2.  From  the  men  directly  reporting  to  him  and  with  whom  he 
consults  regarding  the  company's  policies.  In  the  days  when 
Mr.  Whelan  was  actively  connected  with  the  United  Cigar  Stores 

*he  allowed  himself  but  one  vote  at  the  regular  weekly  board 
meeting.  If  he  advocated  a  measure  at  one  meeting,  which  was 
adopted,  several  meetings  later  he  would  attack  the  measure 
from  some  other  angle. 

The  executive  reports,  as  illustrated  later  show  how  all 
information  js  digested  in  tabloid  form  for  the  executive. 
This  is  in  line  with  the  accepted  theory  that  an  executive  should 
not  be  immersed  in  detail.  His  business  is  to  find  subordinates 
who  can  do  the  detail  work  for  him.  It  is  an  excellent  thing, 
of  course,  to  have  the  executive  deal  in  percentages  but,  before 
leaving  this  point,  it  would  be  well  to  remind  the  reader  again 
that  only  through  an  infinitesimal  knowledge  of  all  the  detail 
connected  with  the  business  is  it  possible  for  the  executive  to 
grasp  the  true  significance  of  the  percentages. 

Traveling  Superintendents. — As  soon  as  a  chain  attains  moder- 
ate size,  the  executive  must  delegate  some  of  his  functions.  He 
promotes  one  of  his  store  managers  to  take  active  charge  of  a 
group  of  stores,  to  visit  them  daily,  or  at  least  several  times 
weekly,  to  advise  with  them  as  to  their  problems,  and  to  see  that 
everything  is  right.  A  district  manager  in  the  United  Cigar 
Stores  is  in  direct  charge  of  about  fifteen  stores  in  one  city  or  an 
appropriate  number  in  a  more  scattered  locality.     Assignment 


ORG  A  NIZA  TION  187 

of  stores  to  a  manager  is  made  on  the  basis  of  traveling  facilities 
and  distances  between  stores.  These  men  are  given  careful 
estimates  of  what  sales  in  each  store  should  be,  and  it  is  one  of 
their  duties  to  consult  with  the  store  managers  as  to  methods  of 
attaining  or  exceeding  these  quotas. 

These  traveling  superintendents  often  report  directly  to  the 
chief  executive,  although  in  the  largest  chains  this  is  impossible. 
George  H.  Hartford,  the  founder  and  creator  of  the  Great  Atlantic 
&  Pacific  Tea  Company,  for  many  years  made  it  a  point  to  see  all 
his  traveling  superintendents  in  person.  He  was  not  satisfied 
to  accept  their  reports  but  often  dropped  in  on  the  store  of  the 
chain  nearest  the  place  he  happened  to  be.  He  always  called 
on  the  local  store  where  he  spent  his  vacations. 

Where  the  chain  is  not  large  enough  to  hire  special  inventory 
men,  the  traveling  superintendent  must  himself  make  periodic 
inventories  of  the  stores  in  his  district.  Naturally,  a  man  who 
is  chosen  for  this  position  must  have  certain  qualities : 

1.  He  must  be  loyal.  His  opportunities  for  speculation  and  collusion  are 
naturally  broad;  but  it  is  to  his  credit  that  few  cases  of  dishonesty  are 
recorded. 

2.  He  must  be  a  good  salesman.  It  takes  a  higher  type  of  salesman  to 
teach  others  how  to  sell  than  it  does  to  sell  in  person. 

3.  He  must  know  his  merchandise.  With  his  broader  knowledge  of 
conditions  and  wider  experience,  he  should  be  able  to  help  the  store  manager 
with  many  of  his  stock  problems. 

These  traveling  superintendents,  or  district  managers,  or 
whatever  they  are  called,  meet  at  stated  intervals  and  discuss 
matters  of  general  importance.  They  talk  over  policies  which 
have  worked  or  failed  to  work,  go  over  sales  campaigns,  etc. 

These  men  are  directly  in  line  for  promotion,  and  have  every 
interest  in  furthering  the  progress  of  the  organization.  They 
are  the  direct  links  between  the  managerial  and  the  retailing 
functions. 

The  store  manager  and  the  clerk  have  been  discussed  in  sepa- 
rate chapters,  but  nothing  as  yet  has  been  said  about  methods 
of  payment  and  remuneration  for  the  various  grades  of  em- 
ployees. Before  we  take  this  up  in  detail  there  is  one  further 
point  to  discuss  in  regard  to  the  personnel. 


188  CHAIN  STORES 

Specialization. — The  larger  the  chain  store  becomes,  the  more 
profitable  it  is  to  divide  and  sub-divide  functions  among  special- 
ists who  are  experts  in  their  own  lines  and  receive  large  salaries 
for  the  work  they  do. 

For  example,  the  proprietor  of  a  small  chain  probably  does 
the  buying  himself,  sees  to  the  window  trims,  prices  articles, 
and,  in  brief,  does  most  of  the  work  himself.  Soon  he  finds  it 
necessary  to  have  someone  do  his  purchasing  for  him.  He  does 
not  have  time  to  look  out  for  it.  Next,  he  has  to  get  a  bookkeeper 
and  perhaps  an  expert  accountant.  As  his  chain  grows,  his 
staff  of  experts  becomes  larger.  Someone  has  to  look  after  the 
advertising.  Finally,  he  has  to  have  someone  to  take  charge  of 
the  real  estate. 

The  number  and  the  functions  of  the  specialists  vary  with 
the  type  of  chain.  Most  chains  have  traveling  auditors  who  drop 
in  at  intervals  and  audit  the  individual  stores.  One  large  bakery 
chain  employs  traveling  bakers  and  traveling  merchandisers 
who  operate  out  of  the  home  office  and  are  not  attached  to  any 
given  district  or  territory,  but  make  the  rounds  of  the  entire 
country. 

The  aim  is  always  to  keep  organization  costs  down  to  the 
lowest  possible  point,  based  on  experience,  which  is  figured  on 
a  general  maximum  production  as  against  a  general  minimum 
payroll.  The  specialist  must  demonstrate  the  worth  of  his  serv- 
ices or  he  is  dropped.  That  is,  the  real  estate  must  prove  a  good 
investment,  the  window  trims  must  sell  goods,  the  house  organ 
must  instill  an  esprit  de  corps  throughout  the  organization,  etc. 

Remunerating  the  Personnel. — How  shall  a  man  be  paid  what 
he  earns?  Few  men  are  satisfied  with  a  fixed  salary  unless  there 
is  opportunity  ahead.  The  chain  organizations  have  probably 
worked  out  the  most  logical  and  best  functioning  methods  of 
remunerating  employees  yet  evolved.  In  general,  the  following 
principle  is  put  into  effect :  After  a  store  attains  a  certain  quota, 
the  manager  gets  a  certain  percentage  of  all  sales  over  this 
amount.  The  district  managers  are  rewarded  from  earnings 
made  by  district  stores. 

To  take  a  specific  example,  the  Woolworth  chain  pays  cash 
salaries  to  the  founders,  the  stenographers,  and  the  clerks. 
Everybody  else  gets  paid  on  the  basis  of  yearly  earnings.     The 


ORGANIZATION  189 

officials  in  the  head  office  at  New  York  are  paid  on  the  basis 
of  earnings  made  by  the  entire  organization.  The  district 
manager  of  each  of  the  eleven  districts  is  paid  on  the  basis  of  what 
his  district  earns.  The  manager  and  the  assistant  manager  take 
a  certain  percentage  of  what  their  particular  store  earns.  Each 
man  gets  his  full  share  of  profits.  Every  employee  receives 
a  cash  bonus  after  being  with  the  company  for  one  year,  and  this 
is  increased  by  the  same  amount  each  year  for  five  years.  If  a 
girl  leaves  to  get  married  after  being  with  the  company  three 
years,  she  is  given  a  cash  wedding  present. 

In  the  New  York  Department  of  Labor  investigation  of  the 
employment  of  women  in  five-  and  ten-cent  stores,  it  was  found 
that  "the  manager  works  on  a  drawing  account  and  receives  a 
percentage  of  profits  on  sales  at  the  end  of  the  year.  The 
percentage  of  his  profits  is  apparently  a  matter  of  individual 
bargaining  between  the  central  or  district  chain  office  and  the 
manager  himself,  although  in  some  cases  percentage  rates  are 
fixed  for  certain  class  stores.  Under  this  system,  the  manager 
very  naturally  has  every  incentive  to  put  his  store  on  a  paying 
basis,  realizing  that  his  own  earnings  depend  upon  the  number 
of  dollars  in  profits  the  store  succeeds  in  making." 

The  United  Cigar  Stores  never  give  a  share  in  the  profits 
of  the  store  but  base  extra  payments  entirely  on  sales.  This 
rule  is  made  so  that  the  clerks  may  not  be  induced  to  sell  the 
goods  with  the  most  profits  in  them.  Each  head  clerk  receives  a 
certain  percentage  of  receipts  for  his  share  of  the  business,  while 
each  clerk  receives  a  salary  commensurate  with  what  he  sells. 
The  success  of  this  method  of  payment  is  plainly  demonstrated 
by  the  fact  that  the  labor  turnover  in  this  concern  is  small. 

In  the  March,  1921,  issue  of  "Administration,"  President  Wise 
goes  into  further  detail.  Among  other  things,  he  says  that 
in  paying  men  for  their  services,  the  company  does  everything 
possible  to  increase  their  earning  capacity.  The  stores  work  for 
business  on  a  monthly  rating.  In  addition  to  fixed  minimum 
salaries,  commissions  are  paid  for  increased  volume.  Ratings 
are  so  figured  that  extra  compensation  is  earned  as  sales  increase. 
In  addition,  there  is  a  bonus  which  it  is  planned  to  give  employees 
who  rank  above  store  managers  as  an  incentive  to  increase 
business  in  stores  under  their  supervision. 


190  CHAIN  STORES 

The  total  volume  for  the  year  is  arbitrarily  computed  and 
month  by  month  vouchers  are  distributed,  based  on  this  volume. 
Vouchers  have  a  money  value  which  increases  as  the  amount 
aimed  at  is  reached.  Mr.  Wise  believes  that  this  is  the  most 
scientific  method  of  profit  sharing  yet  evolved. 

The  Piggly  Wiggly  Company's  method  of  paying  its  employees 
is  interesting.  One  of  its  stores  employs  ordinarily  from  two 
to  three  men,  with  five  men  in  the  big  stores.  All  employees 
receive  regular  salaries.  In  each  store  there  is  a  salary  allowance 
of  three  per  cent,  on  gross  sales  of  $2,000  per  week  and  one  and 
one-half  per  cent,  on  everything  over  that.  Out  of  the  percent- 
age allowance  the  salaries  must  first  be  paid  and  then  the  remain- 
der is  distributed  equally  among  the  employees. 

For  example,  if  one  of  their  stores  did  a  business  of  $4,000 
in  one  week,  the  amount  available  for  salaries  would  be  $90,  that 
is,  three  per  cent,  on  the  first  $2,000  and  13^  per  cent,  on  the  last 
$2,000.  If  there  were  three  employees,  one  receiving  $30,  the 
second  $25,  and  the  third  $20  a  week,  the  pay  roll  would  be  $75 
a  week,  leaving  $15  to  be  divided,  or  $5  for  each  employee. 

A  fairly  large  cash-and-carry  grocery  chain  gives  all  its  men 
a  salary  and  one  half  of  one  per  cent,  of  the  gross  sales  in  their 
stores.  Previously  the  men  had  been  given  a  bonus  at  Christmas 
but  this  policy  was  abandoned  in  favor  of  the  per  cent,  on  sales, 
paid  quarterly.  The  manager  can  see  with  his  own  eyes  just 
what  he  is  making  at  any  time. 

One  of  the  officials  of  this  chain  says:  "We  don't  underpay 
our  clerks.  It  isn't  safe.  They're  handling  our  money,  and  if 
we  don't  give  them  enough  to  live  on,  it  practically  forces  them 
to  be  dishonest.  We  have  very  little  trouble  with  dishonesty. 
Also,  our  labor  turnover  is  small.  Some  of  our  managers  have 
worked  for  us  from  ten  to  fifteen  years." 

In  another  grocery  chain,  managers  are  paid  on  a  basis  of 
say  $30  to  $35,  with  a  commission  of  one  per  cent,  after  their 
salaries  at  $35  a  week  equals  sales  on  an  agreed  percentage  basis. 
In  such  cases  as  these,  salaries  range  from  $50,  which  is  about  the 
lowest,  to  whatever  amount  of  business  the  manager  can  transact. 

Helpers  may  obtained  as  high  as  $17  to  $25  a  week,  depending 
largely  on  the  report  made  of  them  by  the  manager.  Although 
$25  is  high  for  this  class  of  labor,  it  attracts  an  excellent  grade 


ORGANIZATION  191 

of  man,  who  is  directly  in  line  for  promotion  to  manager  in 
another  store. 

The  examples  given  are  typical  of  the  majority  of  chains. 
Executives  and  specialists  receive  high  salaries,  which  is  counter- 
balanced by  the  comparatively  low  salaries  paid  managers  and 
clerks. 

The  Penney  Plan. — J.  C.  Penney,  head  of  a  chain  of  313  dry 
goods  stores  in  the  West  and  Middle  West,  has  a  scheme  for 
remunerating  his  personnel  which  has  received  wide  publicity 
and  a  description  of  which  is  well  worth  reproducing  here.  We 
quote  from  the  Dry  Goods  Economist  of  May  5,  1920: 

"The  Penney  plan  may  be  summarized  by  calling  it  an  original 
principle  of  organization  in  management,  founded  upon  a  real  belief 
in  the  inherent  honesty  of  human  nature  and  the  idea  that  nothing 
stimulates  a  man  like  the  knowledge  that  hard,  intelligent  work  will 
bring  a  certain  and  substantial  reward.  This  plan  results  in  an  intensive 
cooperation  in  the  passing  on  of  a  man's  knowledge  and  qualities  of 
leadership  to  his  helpers  in  the  business,  and  an  endless  chain  of  the 
development  of  the  individual. 

"The  plan  involves  the  stimulation  of  the  growth  of  each  new  store 
until  its  owners  are  able  to  start  up  another,  which  in  turn  will  send  out 
other  branches.  The  stock  of  the  parent  company  is  classified  by 
stores  and  a  separate  set  of  books  is  kept  for  each  store. 

"Mr.  Penney  owns  all  the  stock  of  Store  No.  1.  In  Store  No.  2 
he  owns  %  and  the  manager  H.  In  Store  No.  3  he  has  H,  his  partner, 
the  manager  of  Store  No.  2  has  H  and  the  manager  of  No.  3  the  other 
>^.  Suppose  it  is  decided  that  Store  No.  2  shall  start  a  new  branch,  in 
charge  of  a  man  who  has  shown  partnership  caliber.  Mr.  Penney  re- 
tains H  interest,  the  new  partner  getting  the  other  H  Mr.  Penney  held. 

"This  Store,  No.  4,  later  starts  a  fifth  store  in  which  it  is  desired  that 
the  manager  shall  have  an  interest.  Then  Mr.  Penney,  as  the  senior 
partner  drops  out,  takes  none  of  the  new  stock,  so  that  the  stock  in  that 
store  is  held  in  equal  shares  by  its  manager,  the  manager  of  Store  No.  4, 
its  parent,  and  the  manager  of  Store  No.  3.  Mr.  Penney,  of  course, 
retains  his  interest  in  the  other  four  from  which  he  may  start  branches 
in  which  he  will  have  a  share. 

"Mr.  Penney  is  constantly  training  new  men  for  partnership.  The 
men  who  are  admitted  to  this  partnership  pay  for  their  interests  out 
of  their  earnings.  There  are  stores  in  the  chain  in  which  Mr.  Penney 
holds  no  stock,  there  being  room  for  but  three  partners,  but  it  is  not  his 


192  CHAIN  STORES 

idea  to  appropriate  all  of  a  good  thing.  He  prefers  to  have  a  number 
of  stores  in  each  of  which  he  owns  a  part  interest,  rather  than  a  few 
stores  in  which  he  owns  all  the  stock,  and,  as  store  after  store  opens  new 
branches,  the  number  of  these  part  interests  increases. 

"The  men  in  charge  of  these  stores  never  fear  that  someone  they  are 
training  wiU  come  up  to  supplant  them.  They  give  these  men  every 
encouragement  and  assistance,  for  the  sooner  they  develop  men  able  to 
manage  a  store,  the  sooner  will  there  be  another  store  in  which  both  will 
share  the  profits.  In  other  words,  under  the  Penney  plan  it  is  not  a 
matter  of  starting  a  store  and  then  looking  for  a  manager.  The  manager 
is  made  first  and  then  a  store  is  made  for  him  to  operate. 

"The  common  stock  is  numbered  in  series  according  to  the  number  of 
the  store  which  it  represents.  The  owners  of  store  No.  10  will  hold 
series  No.  10  stock.  Every  time  a  store  is  opened  a  man  is  advanced  to 
partnership,  and  five  other  men,  all  of  partnership  caliber,  are  taken  into 
the  company. 

"The  initial  salary  is  small,  for  a  good  reason.  When  a  man  must 
make  a  small  salary  stretch  a  long  way,  he  works  all  the  harder  to 
reach  the  point  where  he  wiU  become  a  sharer  in  dividends.  And  the 
economy  he  learns  while  living  on  little  is  as  useful  in  handling  the 
income  of  a  store  as  of  a  home." 


The  Penney  plan  of  remunerating  employees  by  making  them 
partners  in  the  business  has  succeeded  in  this  chain.  How  far 
the  same  principles  could  be  extended  to  other  chain  fields  is 
problematical.  As  far  as  is  known,  the  plan  introduced  by  Mr. 
Penney  goes  farther  than  any  other  in  allowing  the  employees  to 
obtain  a  share  in  the  business  and  active  participation  in  its 
management. 

Remunerating  .Sales  People. — In  the  very  first  instance,  it  is 
necessary  to  distinguish  between  a  clerk  with  no  prospects,  or  at 
least  very  faint  prospects,  of  advancement,  and  a  sales  clerk  in 
direct  line  for  a  local  managership.  Some  chains  find  it  necessary 
to  employ  a  great  many  sales  people,  mostly  girls,  who  merely 
work  for  the  salary  they  obtain.  Other  chains  find  it  possible 
to  make  the  salesmen  they  employ  constantly  interested  in  their 
work  by  the  knowledge  that  as  soon  as  they  have  made  good 
they  will  be  promoted. 

The  second  point  to  note  is  the  authority  of  the  store  manager 
over  his  selling  personnel.     Ordinarily,   the  number  of  clerks 


ORGANIZATION  193 

employed  in  a  chain  store  is  small  compared  with  other  retail 
stores,  because  of  efficient  management,  more  specialized  stock, 
etc.  Stores  may  be  so  small  that  the  manager  can  run  them 
alone  with  occasional  assistance.  The  five-  and  ten-cent  stores 
are  by  far  the  largest  employers  of  cheap  sales  help,  and  have 
found  the  labor  problem  particularly  perplexing. 

Local  managers  are  ordinarily  allowed  to  hire  their  own  help 
provided  the  payroll  is  kept  within  certain  percentage  limits 
in  relation  to  sales.  This  percentage  figure  may  come  as  low  as 
eight  per  cent,  in  the  larger  chains  and  as  high  as  14  per  cent,  in 
the  smaller  chains.  The  payroll,  by  means  of  hiring  extra 
workers  for  Saturdays  and  holiday  seasons,  is  kept  at  a  fairly 
constant  figure,  a  deficit  during  the  slack  season  being  made  up 
by  a  surplus  at  Christmas. 

The  old  method  of  remunerating  sales  girls  used  by  five-  and  ten- 
cent  store  chains  has  been  to  pay  what  the  labor  market  required 
at  the  moment,  and  no  more.  This,  of  course,  brought  with  it  an 
exceedingly  high  labor  turnover.  The  five-  and  ten-cent  store  was 
the  last  resort  when  out  of  work.  Naturally  this  caused  a  very 
low  degree  of  efficiency  in  the  sales  force. 

Conditions  are  now  changing.  The  progressive  chains  have 
come  to  see  that  even  the  policy  of  "letting  the  goods  sell  them- 
selves" can  be  overdone.  In  the  past,  managers  have  often 
complained  of  difficulty  in  keeping  within  the  percentage  limit 
allowed  them  for  labor.  It  has  been  hard  to  convince  the  local 
managers  that  it  pays  to  teach  the  clerks  better  selling  methods. 
The  worst  temptation  the  chain  manager  has  to  face  is  the 
availability  of  cheap  help.  One  grocery  chain  found  it  possible 
to  get  men  or  boys  to  work  from  two  until  six  and  all  day  Satur- 
day for  $5  a  week.  An  assistant  of  this  sort  sweeps  the  floor, 
washes  the  windows,  packs  away  the  supplies,  and  generally 
reduces  store  overhead. 

But  facts  and  statistics  have  been  tabulated  which  seem  to 
prove  conclusively  that  higher  paid  clerks,  even  in  five-  and  ten- 
cent  stores,  are  a  good  investment  One  chain  in  particular  has 
conducted  a  regular  campaign  to  educate  its  managers  in  regard 
to  the  benefits  of  better  paid  clerks.  Following  is  a  copy  of  a 
notice  sent  to  managers  April  1,  1921: 


194  CHAIN  STORES 

Decreasing  Salary  Per  Cent,  by  Increasing  Efficiency 

"The  average  salary  paid  salespeople  at  Store  No.  X  the  first  three 
months  of  1920  was  $15.92  per  week.  The  average  number  of  sales- 
people employed  was  111. 

' '  The  average  salary  for  the  same  period  inl921is$19.29.  Number 
employed  103. 

"Salaries  for  March,  1920,  averaged  10^  per  cent,  and  for  March, 
1921,  8>2  per  cent.  Is  this  not  conclusive  evidence  that  paying  good 
salaries  to  efficient  salespeople  is  productive  of  better  results  than 
cutting  salaries  and  employing  second-grade  help? 

"Study  your  own  store  on  the  above  basis.  It  should  develop 
something  of  real  interest." 

Efficient  sales  service  cannot  be  obtained  without  the  coopera- 
tion of  the  central  organization  and  the  local  managers.  It 
takes  time,  of  course,  to  effect  such  a  change  as  the  method  of 
paying  salespeople.  But  the  trend  of  the  time  is  in  favor  of 
better  and  more  scientific  handling  of  the  personnel,  and  this 
development  in  the  five  and  ten  cent  store  field  is  directly  in  line. 

Wage  Rates  for  Clerks. — Sales  clerks  are  ordinarily  paid  a 
flat  rate.  Occasionally  there  is  a  wage  plus  a  commission  on 
sales,  or  a  straight  commission  with  no  wage  guaranteed.  It 
has  been  found  almost  universally  true  that  the  flat  rate  gives 
the  poorest  returns,  as  far  as  sales  efforts  on  the  part  of  the  clerks 
is  concerned.  Wherever  commissions  are  given,  or  bonuses  for 
increased  sales,  the  results  are  almost  immediately  apparent  in 
the  attitude  of  the  clerk  and  the  volume  of  sales.  Some  shoe 
stores  follow  out  a  plan  by  which  the  clerk  is  given  a  bonus  only  on 
goods  which  the  company  desires  to  sell.  That  is,  on  staple  lines, 
there  is  no  bonus,  because  there  is  little  selling  effort  required. 
On  seasonal  and  special  goods  there  is  a  large  bonus,  because  the 
selling  effort  is  correspondingly  high. 

Generally  speaking,  the  more  sales  effort  is  required  to  sell 
the  goods,  the  higher  salary  must  be  paid  to  the  sales  clerk.  In 
many  chains,  salaries  can  be  kept  low  because  of  the  prospect 
for  advancement  held  out  to  the  clerks.  In  the  chain  drug 
stores,  a  commission  is  usually  paid  clerks  for  selling  private 
brands,  or  it  may  be  possible  for  the  manufacturer  of  a  nationally 
advertised  article  to  make  some  arrangement  by  which  the  clerks 
are  given  a  bonus  on  what  they  sell  of  his  goods. 


ORGANIZATION  195 

Coming  again  to  the  five-  and  ten-cent  stores,  it  has  been 
stated  that  in  the  ordinary  five  and  ten  cent  store,  salesmanship 
is  at  a  low  premium.  The  tendency  at  most  counters  is  to  make 
the  selling  almost  automatic.  The  goods  are  carefully  displayed 
where  they  can  be  examined  by  the  customers  and  the  prices  are 
clearly  marked.  Some  stores  are  beginning  to  try  out  a  plan  of 
self-service  and  the  only  thing  demanded  of  the  salesgirl  is 
wrapping  and  making  small  change.  At  other  counters,  how- 
ever, it  is  still  necessary  to  display  goods,  to  answer  questions, 
and  to  persuade  customers  that  the  goods  on  hand  are  exactly 
those  desired.  Ribbons,  stockings,  hats  and  hat  trimmings, 
underclothes,  etc.,  cannot  approach  maximum  sales  without  the 
personal  contact  between  the  saleswoman  and  the  customer. 
It  is  interesting  that  in  three  stores  the  only  salesgirls  on  a  com- 
mission basis  were  those  at  the  music  counters,  and  the  difference 
between  the  attitude  towards  customers  of  these  girls  with  their 
obvious  desire  to  sell  goods,  and  the  attitude  of  the  general 
salesgirl,  who  seemed  to  care  little  or  not  at  all,  was  apparent  in 
every  case. 

Approximately  84  per  cent,  of  the  workers  in  five  and  ten  cent 
stores  belong  to  the  selling  force,  all  women,  with  few  exceptions. 
In  the  Department  of  Labor  survey,  exactly  one-half  of  the  full- 
time  women  workers  received  less  than  $13.49  a  week.  Two 
thirds  of  them  received  less  than  $15  a  week.  Ordinarily,  the 
smaller  the  city  the  lower  wage  was  paid,  and  this  holds  true  as  a 
rule  in  all  chain  stores.  An  assistant  or  helper  in  a  city  store 
is  sure  to  obtain  larger  wages  than  is  paid  for  the  same  service  in  a 
country  store. 

Methods  of  Payment. — Ordinarily,  checks  for  wages,  bonuses, 
etc.,  are  mailed  direct  from  the  home  office.  In  some  cases, 
however,  the  local  manager  pays  in  cash.  It  is  usual,  however, 
in  such  cases  to  obtain  a  receipt  from  the  employee  or  have  him 
sign  in  a  book  or  on  a  special  form  which  may  be  forwarded  to 
the  central  office. 

In  some  chains,  checks  for  employees  are  delivered  or  mailed 
from  the  central  office  to  reach  each  branch  a  day  or  so  before 
pay  day.  Then  the  local  manager  distributes  these  checks, 
cashing  them  if  the  employee  desires,  the  endorsed  check  serving 
as  a  receipt. 


196  CHAIN  STORES 

In  some  cases,  wages  may  be  paid  from  a  contingent  fund. 
Under  any  condition,  canceled  checks  or  receipts  from  employees 
must  be  turned  in  to  the  central  office.  If  any  employee  is 
dismissed  for  any  reason,  the  local  manager  should  be  authorized 
to  pay  directly  and  immediately. 

Conclusions. — There  is  a  definite  form  of  organization  to  be 
found  in  chain  systems.  Although  the  actual  duties  of  the 
various  grades  may  differ,  there  is  the  common  requirement  that 
a  man  start  at  the  bottom  and  work  up.  There  is  also  a  division 
of  functions  at  headquarters  among  specialists  in  various  lines, 
such  as  buying,  realty,  advertising,  window  trimming,  etc. 

In  regard  to  remuneration,  the  aim  is  and  should  be  to  reward 
each  man  according  to  the  work  he  does,  and,  for  better  effecting 
this  result,  various  forms  of  bonus  systems  have  been  introduced. 
In  the  average  case: 

1.  The  executives  receive  fairly  large  remuneration,  at  least  as 
high  as  they  would  probably  earn  if  working  for  themselves. 
This  pohcy  is  profitable  because  the  executives  are  the  brains  of 
the  organization,  and  parsimony  in  this  direction  does  not  pay. 

2.  Store  managers  receive  some  form  of  pajonent  beyond  a 
fixed  weekly  or  monthly  salary. 

3.  It  has  been  found  that  even  sales  people  become  more 
efficient  if  they  are  given  some  form  of  extra  recompense  for 
efficient  sales  service. 


CHAPTER  XIII 
TRAINING  MEN  FOR  PROMOTION 

Outline 
Promotion  policies. 

1.  Start  in  at  bottom. 

(o)  Learn  selling  first  hand. 
(6)   Know  stock. 

2.  Fill  executive  positions  within  organization. 

(a)  Train  suitable  material. 

3.  Make  promotions  on  merit. 

(a)  Length  of  service  no  criterion  of  efficiency. 

(b)  No  policy  of  favoritism. 
The  road  to  promotion. 

1.  Clerk. 

2.  Manager. 

3.  District  supervisor. 

4.  Executive  position. 
Technique  of  promotion. 

1.  Controlled  by  individual  records. 

2.  Dependent  on 

(a)  Results  obtained. 

1.  Power  to  make  sales. 

3.  Shifting  men  as  a  form  of  promotion. 
The  employment  department. 

1.  Methods  of  obtaining  clerks. 
Training  clerks. 

1.  In  selling. 

(a)  Policy  of  the  chain. 

(b)  Store  routine. 

(c)  Service  to  customers. 

(d)  Knowledge  of  product  sold. 

(e)  Miscellaneous. 

2.  Use  of  model  store. 

(a)  Arrangement. 

1.  Allowance  for  variations  in  stock. 

(b)  Arrangement  of  displays. 

(c)  Store  conferences. 
Desirability  of  inspectors. 

1 .  To  test  selling  knowledge  of  clerks. 

2.  To  test  following  rules  and  policies  established  for  clerks  to  follow. 

3.  To  collect  new  selling  ideas. 

197 


CHAPTER  XIII 

TRAINING  MEN  FOR  PROMOTION 

It  is  generally  agreed  that  the  most  difficult  problem  of  the 
chain  is  to  pick  out  and  train  its  men.  As  the  chains  expand  in 
size,  both  of  number  of  member  stores  and  territorial  extent 
covered,  this  problem  grows  more  weighty.  A  point  is  finally 
reached  where  it  is  necessary  to  entrust  the  choosing  and  training 
of  the  personnel  to  a  separate  department.  It  is  difficult  to 
state  definitely  at  exactly  what  point  in  its  development  a  chain 
should  institute  a  personnel  department.  Roughly  speaking, 
such  a  department  is  necessary  as  soon  as  the  personal  touch, 
which  the  owner  of  a  small  independent  store  maintains  over  each 
of  his  employees,  is  lost.  As  the  chain  grows  larger  the  functions 
of  the  personnel  department  will  increase.     Its  duties  include : 

1.  Selection  of  employees. 

2.  Education  and  training. 

3.  Health. 

4.  Service  and  maintenance  of  morale. 

Personnel  Administration. — "Personnel  administration,"  ac- 
cording to  Tead  and  Metcalf's  Personnel  Administration,  "is 
the  direction  and  coordination  of  the  human  relations  of  any 
organization  with  a  view  to  getting  the  maximum  necessary  pro- 
duction with  a  minimum  of  effort  and  friction,  and  with  proper 
regard  for  the  genuine  well-being  of  the  worker." 

These  questions  are  treated  in  this  and  the  following  chapters. 
Personnel  administration  is  comparatively  new  in  its  application 
to  the  retail  j&eld,  although  for  some  time  it  has  been  used 
with  excellent  results  in  industrial  concerns.  One  large  chain 
organization  with  headquarters  in  New  York  has  gone  so  far  as 
to  test  its  entire  personnel  for  mental  alertness.  The  old  process 
of  trying  out  a  man  on  a  job  was  not  furnishing  minor  executive 
positions  fast  enough  to  fill  the  demand.     The  problem  was  put 

198 


TRAINING  MEN  FOR  PROMOTION 


199 


up  to  the  Bureau  of  Personnel  Research,  an  organization  con- 
nected with  the  Carnegie  Institute  of  Technology.  C.  S. 
Yoakum,  the  director  of  Personnel  Research  for  that  institution, 
gives  the  following  account  of  results : 

Figure  26  shows  the  results  obtained.  The  organization  has 
been  divided  into  three  groups:  Executives,  minor  executives, 
and  clerks.  These  groups  correspond  to  distinct  divisions  within 
the  company.  The  scores,  and  the  number  of  individuals  making 
each  score,  are  shown.     The  highest  possible  score  is  184.     Five 


EXFCflTIVES 
J. 


MINOR  E  (ECUTIVE  5 


^ 


Fig.  26. — Showing  the  results  of  a  mental  test  applied  to  every  member  of  a 
large  chain,  from  executives  to  clerks.  Each  circle  represents  one  member  of  the 
organization.  Executives  of  the  company  all  scored  above  60,  minor  executives 
averaged  119,  while  in  the  clerical  group  average  was  only  55.  (Forbes  Magazine, 
Jan.  21,  1922.) 

clerks,  for  example,  made  scores  between  0  and  20,  while  only 
two  made  scores  above  140.  In  plotting  the  chart  not  all  of  the 
clerks  were  taken,  but  only  a  representative  group.  If  all  the 
the  clerks  were  shown  the  distribution  of  scores  from  low  to  high 
would  be  in  just  the  same  proportion  as  is  illustrated.  Above 
the  line  of  the  clerks,  however,  each  small  circle  represents  an 
individual.  The  chart  as  a  whole  represents  accurately  the 
distribution  of  scores  of  the  company's  two  thousand  employees. 
The  executives  of  the  company  all  scored  above  60  in  the  test, 
and  only  four  fell  below  100.  The  average  for  the  group  was 
127.  The  minor  executives  ranged  all  the  way  from  45  to  166, 
while  the  average  was  119.     In  this  group  only  seven  individuals 


200  CHAIN  STORES 

out  of  thirty-five  fell  below  100.  In  the  clerical  group  the  range 
of  scores  was  extremely  wide — from  3  to  160 — but  the  average 
was  only  55.  Only  15  per  cent,  scored  above  100.  The  indi- 
viduals composing  this  15  per  cent,  are  just  as  intelligent,  just 
as  mentally  alert,  and  have  just  as  great  capacity  for  acquiring 
knowledge  and  skill  as  have  the  executives  of  the  company. 
Comparing  the  averages  of  the  groups,  however,  it  is  clearly 
shown  that  different  levels  of  intelligence  are  represented  by  the 
different  groups. 

The  black  dots  on  the  chart  indicate  that  one  executive  and  one 
minor  executive  left  the  company  because  of  inefficiency  before 
the  results  of  the  test  were  known.  The  circle  marked  A  indi- 
cates a  minor  executive  who  took  four  years  to  absorb  training 
usually  given  in  one.  Circle  B  represents  a  man  whose  position 
is  due  solely  to  long  experience  and  training  but  who  will  probably 
never  go  further.  C  is  doubtful  but  is  being  given  another 
chance. 

As  a  result  of  the  tests  no  minor  executives  were  hired  unless 
they  scored  above  80  and  between  80  and  100  only  if  other 
qualifications  were  specially  good.  After  being  in  operation  ten 
months,  Fig.  27  shows  results  secured. 

One  hundred  and  thirty-three  applicants  have  been  examined. 
Eighty-two  have  been  rejected.  Twenty-four  were  automati- 
cally rejected  because  they  scored  below  80  in  the  test;  twenty 
others  scoring  between  80  and  100  were  rejected  because  of  low 
score  and  the  lack  of  any  other  specially  good  qualifications. 
The  remaining  thirty-eight  were  rejected  on  other  than  a  mental 
alertness  basis.  During  the  same  period  fifty-one  applicants 
were  accepted.  Two  of  this  number  scored  between  80  and  100, 
and  were  hired  because  of  very  good  recommendations.  One 
of  these  has  already  been  asked  to  resign  because  of  his  ineffi- 
ciency. Forty-nine  of  the  accepted  applicants  scored  above  100. 
Of  this  number  only  five  have  proved  unsatisfactory,  though 
two  others  have  resigned  for  outside  reasons.  Forty-two,  or 
82  per  cent,  are  making  good  and  will  furnish  dependable  material 
for  the  making  of  future  executives.  The  company  considers 
this  a  very  successful  ten  months  of  selection.  Hereafter  the 
critical  score  will  be  set  at  100. 

Intelligence,  of  course,  is  not  the  only  requisite  for  an  employee 


TRAINING  MEN  FOR  PROMOTION 


201 


of  executive  calibre,  but  it  is  an  essential  qualification.  Tests 
for  other  qualifications  are  being  carried  out  and  are  being 
developed.  The  aim  of  the  intelligence  test  is,  as  Mr.  Yoakum 
says  "to  measure  human  capacities  in  observation,  in  concentra- 
tion, in  simple  reasoning,  in  understanding,  and  in  handling  ideas 
according  to  instructions.     All  of  these  human  intellectual  powers 


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Fig.  27. — Of  133  applicants  for  minor  executive  positions  examined  during 
a  period  of  10  months,  82  were  rejected  and  51  accepted,  of  whom  42  are  making 
good.  The  figures  at  the  right  represent  the  number  of  applicants  and  the 
shaded  parts  resignations.     (Forbes  Magazine,  Jan.  21,  1922.) 

become  of  increasing  importance  as  business  responsibility- 
increases." 

Promotion  Policies. — There  are  certain  principles  of  promo- 
tion which  can  be  applied  generally  to  nearly  all  chains. 

1.  A  man  must  start  in  at  the  bottom  and  work  up.  That  is, 
he  must  first  of  all  learn  to  sell  goods  himself,  he  must  become 
acquainted  with  his  stock,  must  find  out  the  customers'  likes  and 
dislikes.  In  the  Woolworth  organization  every  man,  from  the 
store  manager  up,  begins  at  the  bottom.     Virtually  everybody 


202  CHAIN  STORES 

in  the  United  Cigar  Stores  organization  has  served  behind  the 
counter. 

2.  Higher  positions  are  filled  within  the  organization.  It  is 
a  fixed  policy  in  all  established  chains  to  fill  vacancies  from  men 
who  have  actually  trained  for  those  positions.  The  United 
Cigar  Stores  Company  at  their  main  office  never  allows  a  position 
to  remain  vacant  for  a  moment,  even  during  vacations.  The  man 
below  always  takes  the  place  of  his  superior. 

3.  Promotion  is  made  on  merit  alone,  not  because  of  length  of 
service,  influence,  or  any  other  reason.  Men  who  do  not  fit 
eliminate  themselves  or  are  eliminated.  No  man  whose  personal 
views  are  at  variance  with  the  policy  of  the  organization  can  hope 
to  be  promoted. 

The  United  Cigar  Stores  Co.,  with  a  personnel  of  6,500,  believes 
there  is  plenty  of  executive  ability  klways  available.  In  addi- 
tion, it  recruits  the  ranks  of  its  buyers  from  the  clerks.  In 
every  chain,  good  clerks  are  consistently  promoted  to  be  managers, 
and  good  managers  to  be  supervisors  or  district  managers. 

But  there  is  one  class  in  a  chain  store  organization  which 
has  little  chance  for  advancement,  and  this  is  the  girl  in  the  five 
and  ten  cent  store.  Opportunities  for  her  are  rare.  She  may 
become  a  bookkeeper,  a  floor-walker,  a  window  dresser,  or  in 
rare  cases  an  assistant  manager,  but  on  the  whole  she  has  little 
to  look  forward  to  in  the  organization.  This  is  due  to  two 
reasons,  one  reacting  on  the  other. 

1.  The  girl  employed,  at  the  salary  paid,  usually  has  inferior 
intelligence  and  possesses  little  sales  talent.  That  is,  she  is 
not  especially  fitted  to  make  herself  invaluable  to  the  organi- 
zation and  to  put  herself  in  line  for  promotion. 

2.  Few  five-  and  ten-cent  stores  have  spent  any  time  or  money 
trying  to  better  the  sales  talent  they  have. 

But,  with  this  exception,  the  road  to  promotion  is  generally 
open,  and  in  few  other  lines  of  business  is  it  possible  for  the 
worker  to  get  a  squarer  deal  from  the  management. 

A  Man's  Record. — Progressive  chains  do,  and  should  do, 
everything  possible  to  increase  sales  effort  on  the  part  of  the 
personnel.  Then  by  their  careful  system  of  records,  they  can 
watch  the  progress  of  a  member  of  their  organization  from  the 
moment  he  steps  behind  the  counter.     They  have  a  record  of  the 


TRAINING  MEN  FOR  PROMOTION  203 

sales  in  that  store  prior  to  the  time  he  stepped  into  it,  and  it  is  an 
easy  matter  to  compare  this  old  record  with  the  new  performance. 

In  the  National  Drug  Stores  organization,  the  facts  about 
every  man  are  noted  on  a  card.  When  a  vacancy  occurs,  these 
cards  are  consulted,  and  the  man  who  apparently  possesses  the 
most  desirable  characteristics  for  the  position  is  sent  for  and 
interviewed. 

The  United  Cigar  Stores  Co.  lays  especial  stress  on  courtesy. 
Those  who  do  best  to  uphold  this  policy  are  presented  with  a 
gold  watch  and  a  testimonial.  President  Wise  says  "the  power 
to  give  service  would  stand  a  man  in  as  good  stead  as  anything 
for  promotion.  The  man  who  combines  honesty  of  purpose, 
and  loyalty  to  the  company,  with  active  interest  in  promoting 
goodwill  and  satisfying  customers,  is  so  valuable  to  the  United 
Cigar  Stores  that  he  is  bound  to  climb  rapidly." 

Courtesy,  without  doubt,  is  a  difficult  quality  to  tabulate 
and  put  on  cards.  But  it  is  also  true  that  courtesy  almost 
invariably  results  in  increasing  sales,  and  sales  are  simple  matters 
to  place  on  record.  In  addition,  the  United  Cigar  Stores  relies 
on  a  department  of  inspection,  since  they  have  found  the  average 
clerk  does  not  like  to  say  "thank  you"  unless  he  is  prodded. 
Therefore,  a  clerk  is  checked  by  sales  records  and  personal 
inspection. 

Naturally,  a  store  manager  is  judged  by  the  results  he  obtains 
from  his  store.  It  is  not  always  easy  to  determine  just  what  a 
manager  should  sell  from  a  particular  store,  since  volume  of  sales 
may  be  affected  by  matters  outside  his  control.  Thus  a  store 
manager  should  not  be  judged  by  what  other  stores  are  doing, 
but  rather  by  what  happened  in  his  own  store  previously.  In 
general,  of  course,  if  sales  increase  in  the  majority  of  stores,  the 
rest  of  the  stores  should  show  this  same  increase  unless  there  are 
reasons,  beyond  the  control  of  the  manager,  to  prevent. 

Clerks  on  a  commission  basis  have  often  complained  that  at 
some  counters  it  was  possible  to  make  twice  as  much  commission, 
with  half  the  amount  of  work,  as  at  other  counters.  Some 
managers  have  tried  to  equalize  this  by  moving  poor  selling 
articles  to  main  traffic  channels  or  having  a  bargain  counter 
adjoining,  etc. 

In  all  chains  records  should  be  kept  of  employees  on  some 


204  .  CHAIN  STORES 

basis  which  will  fairly  show  the  individual  merits  of  every  man. 
In  a  small  chain  whoever  decides  on  promotions  will  probably 
know  the  personnel  individually,  but  in  larger  chains,  or  chains 
the  links  of  which  are  widely  scattered,  promotion  is  largely  a 
matter  of  record,  supplemented  by  personal  interview. 

Shifting  Men. — A  man  may  be  shifted  for  several  reasons: 

1.  To  accustom  the  man  to  several  positions.  Some  chains 
habitually  shift  their  organization  around  to  give  all  concerned 
a  fresh  viewpoint.  In  this  way  also  every  position  has  a  number 
of  understudies,  ready  to  take  up  the  regular  duties  of  the  posi- 
tion if  for  any  reason  it  becomes  necessary.  Some  chains  find 
it  advisable  to  shift  managers  of  stores  from  one  city  to  another 
temporarily  to  give  them  fresh  selling  ideas,  and  in  their  absence 
the  assistant  manager  takes  charge,  and  is  given  an  opportunity 
to  win  his  spurs. 

2.  As  a  form  of  promotion.  Where  a  store  manager  is 
dependent  on  the  profits  or  sales  of  his  store  for  his  salary,  it  is 
a  frequent  practice  to  move  a  manager  who  has  done  well  to  a 
bigger  or  more  profitable  store.  This  is  equivalent  to  increasing 
his  pay  and  promoting  him. 

There  is  something  to  be  said  against  this  policy,  however. 
It  is  not  always  desirable  to  break  up  business  acquaintanceships. 
That  is,  a  manager  may  be  a  positive  drawing  card  to  a  store 
through  the  influence  of  his  sales  personality.  -  This  is  true, 
of  course,  only  where  the  manager  meets  his  trade  personally 
and  would  not  apply  to  a  chain  department  or  variety  store.  But 
even  in  those  cases,  the  manager  probably  has  -a  very  thorough 
knowledge  of  local  conditions  which  benefit  both  him  and  the 
chain  directly. 

3.  As  a  form  of  demotion.  If  a  manager  fails  to  make  good 
at  a  certain  store  and  yet  possesses  many  of  the  qualities 
requisite  in  a  manager,  it  is  sometimes  possible  to  move  him 
somewhere  else.  For  example,  a  manager  may  succeed  wonder- 
fully in  a  small  store  where  everything  was  personally  attended  to 
by  himself,  yet  fail  in  a  larger  store  because  he  lacked  the  ability 
to  handle  other  men.  The  logical  move  would  be  to  bring  this 
man  back  to  the  small  store. 

Recruiting  the  Personnel. — Higher  positions  are  filled  from  the 
ranks  in  the  manner  previously  described.     We  have  also  seen 


TRAINING  MEN  FOR  PROMOTION  205 

that  a  man  should  start  at  the  bottom.  Now,  where  are  the 
men  to  be  found  to  fill  these  initial  positions?  The  somewhat 
original  method  used  by  Mr.  Penney  in  obtaining  his  men  has 
already  been  described  elsewhere.  The  success  of  his  method  is 
sufficiently  justified  by  results. 

Larger  chains  have  employment  departments.  There  are 
certain  definite  qualifications  which  an  applicant  is  required  to 
meet.  There  is  an  unusually  large  proportion  of  rejections. 
Previous  selling  experience  is  not  a  necessity.  Some  chains 
regard  it  as  an  objection,  because  they  find  it  far  easier  to  teach  a 
man  with  no  preconceived  selling  ideas  their  policies  and  plans. 
In  the  chains  that  use  scientific  methods  of  hiring,  there  is  a 
small  labor  turnover.  That  is,  men  who  are  chosen  for  employees 
enter  the  service  of  the  chain  with  the  idea  of  ultimately  becoming 
store  managers,  and  not  merely  of  working  until  they  tire.  Work 
on  the  lower  rungs  of  the  chain  ladder  is  particularly  exacting. 
Although  there  are  certain  closing  hours,  these  are  by  no  means 
fixed  and  the  clerk  may  often  have  to  remain  after  the  store  is 
closed  to  pack  away  goods  received  from  the  warehouse  ready  for 
the  next  day's  trade,  or  for  other  routine  work.  But  the  oppor- 
tunity which  the  chain  offers  to  a  man  without  capital  of  his  own 
to  become  a  store  manager  insures  the  average  chain  an  adequate 
supply  of  men  of  the  right  type. 

So  far  as  the  woman  clerk  is  concerned,  the  New  York 
Department  of  Labor  reports  that  the  selection  of  the  girls  for 
the  job  is  governed  by  what  type  of  girl  can  be  obtained  at 
the  particular  time  she  is  needed  for  the  lowest  wage  the  mar- 
ket offers.  Its  finding  was  that  any  idea  of  a  permanent, 
satisfied,  well -trained,  working  force  was  strangely  absent; 
girls  came  and  went.  This  was  particularly  true  in  factory 
towns  where  the  girls  in  good  times  worked  in  a  factory,  and  when 
they  were  laid  off  or  got  tired  of  factory  work,  clerked  in  five  and 
ten  cent  stores  for  a  while. 

There  is  no  accepted  practice  of  hiring  or  choosing  employees, 
but  it  is  safe  to  draw  the  following  conclusion:  Since  the  chain 
organization  is  dependent  on  its  men  as  much  as  on  its  methods, 
no  effort  expended  in  securing  men  of  the  right  type  can  be  wasted. 

Training  the  Salesman. — There  are  two  methods  of  training 
the  salesman,  the  first  before  he  actually  goes  behind  the  counter. 


206  CHAIN  STORES 

and  the  second  training  him  after  he  has  begun  to  sell.  The 
educational  department  ordinarily  takes  charge  of  actually 
training  the  salesmen.  This  pre-training  period  is  the  direct 
outcome  of  the  recognition  of  the  value  of  such  training  in  in- 
creasing sales.  It  enables  the  chain  and  the  clerk  to  earn  more 
money. 

The  chief  defect  of  a  chain,  and  particularly  of  a  large  one, 
is  lack  of  personal  touch.  If  the  organization  can  take  its  men 
at  the  very  beginning  and  teach  them  just  what  the  organi- 
zation itself  is,  the  nature  of  the  goods,  and  in  addition  give 
them  a  brief  but  thorough  course  in  retail  salesmanship,  a  great 
deal  has  been  accomplished. 

Almost  every  chain  has  a  particular  policy  in  regard  to  the 
conduct  of  the  clerk  while  making  a  sale.  It  is  very  important 
that  this  conduct  be  standardized.  A  customer  going  into  one 
branch  of  the  chain  should  find  exactly  the  same  service  that 
he  finds  in  another  branch.  Now  the  only  way  to  standardize 
service  is  to  teach  the  man  just  what  is  wanted  in  the  first  place 
and  then  make  him  hold  to  that  standard.  Therefore,  one 
method  of  training,  although  a  negative  one,  is  keeping 
inspectors  on  the  road,  unknown  to  the  clerks,  to  see  if  poli- 
cies and  practices  are  being  carried  out. 

In  large  cities  or  centers  of  population  classes  of  salesmen 
are  in  daily  session.  An  educational  director  is  in  charge.  In 
a  few  weeks  he  can  teach  the  intelligent  salesman  facts  which 
experience  might  not  drill  into  his  head  for  years.  The  salesman 
thus  trained  lacks  only  experience.  Where  stores  are  located 
at  distant  points,  new  salesmen  may  be  trained  in  district  offices. 
For  example,  a  chain  with  an  educational  department  in  Chicago 
might  refer  an  applicant  in  Maine  to  district  offices  in  Boston. 
If  the  application  were  accepted,  the  salesman  might  be  trained 
direct  in  the  Boston  district  office,  and  receive  his  first  selling 
experience  under  supervision  in  the  district  store. 

Generally  speaking,  salesmen  are  trained  along  the  following 
lines : 

1.  Policy  of  the  chain. 

2.  Knowledge  of  the  product  or  products  sold. 

3.  Arrangement  of  the  store. 

4.  Store  routine. 


TRAINING  MEN  FOR  PROMOTION 


207 


5.  Service  to  customers. 

(o)  Courtesy. 

(b)   Remembering  faces,  etc. 

6.  Miscellaneous  points,  differing  according  to  the  nature  of  the  chain. 

In  other  words,  salesmen  are  taught  standardized  sales  methods 
applicable  to  the  particular  chain. 

The  Model  Store. — When  salesmen  are  trained  at  a  central 
point,  it  is  advisable  to  have  a  model  store.  This  will  serve  two 
purposes.  It  will  give  the  salesmen  a  practical  illustration  of 
what  is  being  taught  them,  and  it  will  serve  the  company  as  a 
model  for  window  trims,  experiments  of  various  kinds  in  selling, 


Fig.  28. — Floor  plan  of  model  Winchester  store. 


etc.  The  model  store  is  virtually  a  laboratory  for  the  entire 
chain.  It  tries  out  experiments  and  the  result  as  shown  in  the 
model  store  determines  whether  they  shall  be  adopted  or  rejected. 
Figure  28  shows  the  floor  plan  of  a  model  Winchester  store. 
Contrary  to  the  ordinary  hardware  store,  there  is  nothing 
to  obstruct  the  view,  no  rolling  ladders  along  the  wall,  nothing 
cumbersome  in  the  center  of  the  store,  and  no  goods  suspended 
from  the  ceiling.  Goods  which  display  well,  specialties,  fancy 
goods,  tools,  cutlery,  or  sporting  goods  are  in  the  front  of  the 


■208  CHAIN  STORES 

store,  while  more  staple  lines  are  in  the  back  or  in  the  basement. 
No  stock  is  carried  above  the  ledges  along  the  side  of  the  store. 

Whether  the  clerk  has  to  arrange  displays  in  his  own  store 
or  not,  he  must  be  taught  at  least  an  understanding  of  the  value 
of  display.  The  model  store  is  dressed  differently  every  week. 
Window  displays  are  changed  and  counter  displays  of  stock 
are  altered.  A  complete  rearrangement  takes  place  to  care  for 
seasonal  demand.  Things  in  the  greatest  demand  are  featured  in 
the  windows,  on  the  counters,  by  floor  displays,  by  displays 
around  pillars  or  columns  in  the  center  of  the  store,  etc. 

Let  us  consider,  for  example  the  experience  of  one  chain,  as  re- 
ported by  F.  J.  Arkins,  Staff  Secretary  of  the  Alexander  Hamilton 
Institute.  He  states  that  the  work  is  carried  on  by  professional 
window  dressers,  advertising  men,  experts  in  the  matter  of  store 
and  stock  display.  The  final  display  is  determined  in  a  con- 
ference. All  the  week,  perhaps,  these  men  have  been  meeting 
the  trade,  discussing  matters  with  patrons,  and  talking  with 
customers  regarding  their  wants.  These  men  have  also  examined 
and  analyzed  the  records  of  all  of  the  branch  stores  for  the 
corresponding  period  one  year  ago,  two  years  back — and  the 
averages  over  a  period  of  perhaps  ten  and  maybe  twenty  years 
or  as  many  years  as  the  chain  has  been  in  business.  The  records 
give  the  results  from  different  types  of  stores,  regarding  counter 
and  window  displays. 

These  men  have  before  them  photographs  of  all  displays  for 
the  week  under  consideration. 

Comments  from  branch  managers  and  customers,  complaints, 
etc.,  are  taken  up  in  conference.  Each  point  is  debated.  There 
is  certain  to  be  a  difference  of  opinion  in  the  conferences.  This 
is  considered  fortunate.  In  this  case,  it  is  believed  that  a  de- 
cision, when  finally  made,  will  meet  the  objections  of  everyone 
present. 

After  the  displays  have  been  decided  upon,  the  windows, 
the  store  interiors,  and  counter  displays  are  photographed  and 
copies  of  the  photographs  are  sent  to  every  branch  manager,  who 
puts  up  his  new  display  according  to  the  photographs.  Thus  all 
store  links  in  the  chain  will  show  the  same  window  display, 
counter  display,  and  floor  display  at  the  same  time  and  for  the 
same  number  of  days. 


TRAINING  MEN  FOR  PROMOTION  209 

Now  assuming  that  the  salesmen  have  had  several  lectures  on 
the  policy  of  the  organization,  its  history,  its  ideals,  etc.,  they  are 
then  taught  practical  retail  salesmanship  through  the  model 
store. 

Knowledge  of  Product. — Chain  salesmen  should  be  given  a 
thorough  knowledge  of  the  stock  they  handle,  its  uses  and 
ingredients,  the  processes  of  manufacture,  how  and  why  goods 
are  packed  in  certain  ways,  the  origin  of  raw  materials,  and  many 
additional  data.  They  must  be  ready  to  answer  questions  of 
any  kind. 

D.  C.  Keller,  directing  head  of  the  Dow  Drug  Co.  of  Cincinnati, 
relates  some  interesting  experiences  he  had  while  investigating 
the  knowledge  of  drug  clerks  in  regard  to  their  products.  The 
following  is  quoted  from  Drug  Store  Merchandising  for  October, 
1921: 

Mr.  Keller  went  to  a  drug  store  in  Chicago.  He  called  for  a 
box  of  sea  salt;  "bath  salt,"  it  is  known  to  the  trade.  Mr.  Keller 
knew  what  the  particular  brand  of  bath  salt  brought  him  by  the 
clerk  cost  the  druggist,  and  what  a  fair  profit  should  be.  He  also 
knew  the  prices  of  certain  other,  equally  popular,  bath  salts. 
"How  much  is  this?"  he  asked  the  salesman. 

The  price  was  given. 

"You  haven't  a  cheaper  grade  of  bath  salt,  have  you?"  he 
asked  then,  as  a  man  who  will  leave  without  buying  will  do, 
unless  he  can  buy  for  considerably  less,  when  prices  quoted 
appear  high. 

The  clerk,  who  had  tried  to  sell  the  high-priced  product  first, 
immediately  produced  a  bath  salt  selling  for  much  Less. 

"What's  the  difference  between  them?"  Keller  asked  non- 
chalantly. 

The  clerk  proceeded  to  expatiate  on  innate  properties  of 
salt  derived  from  water  drawn  from  one  portion  of  the  Atlantic 
ocean  as  compared  with  water  from  some  other,  taken  from  the 
same  seaboard,  some  miles  distant. 

"But  this  higher-priced  salt  was  made  in  Michigan."  Keller 
interjected,  reading  the  label. 

The  clerk  examined  the  carton,  flushed,  and  said  the  goods 
were  given  him  to  sell  at  the  prices  marked  on  them.  A  good 
salesman   always   tried   to   soil   his  highest-priced   wares    first. 


210  CHAIN  STORES 

A  modern  drug  store  contains  so  infinitely  many  items  that  not 
even  a  Solomon  could  know  aU  a  man  should  know  about  the 
goods. 

This  story  goes  to  show  that  a  clerk  may  do  more  harm  by 
ill-advised  efforts  to  sell  goods  with  false  information  than  it 
would  cost  the  chain  to  educate  him  after  finding  out  how 
little  drug  clerks  really  knew  about  the  products  they  sold. 
Mr.  Keller,  now,  before  every  special  sale  in  a  Dow  drug  store, 
prepares  a  tabloid  essay  on  the  product.  This  contains  informa- 
tion about  the  raw  material;  how  it  is  put  together;  what  are  the 
exceptional  uses  of  the  product;  what  are  the  differences  between 
grades;  how  goods  should  be  cared  for  by  their  buyers,  etc. 

To  quote  from  Drug  Store  Merchandising:  "One  copy  goes, 
by  the  firm's  courier,  to  every  Dow  store,  and  must  be  receipted 
for  by  the  manager  in  charge.  It  must  be  posted  at  once  and 
every  employee  is  responsible  for  its  contents  within  a  reasonable 
time — a  few  hours,  that  is — after  posting.  There  can  be  no  excuse 
for  not  having  read  a  bulletin  bearing  the  imprint  of  the  presi- 
dent's office;  instant  dismissal  is  the  reward  of  a  proof  of  this 
charge!" 

This  policy  has  proved  highly  successful  in  increasing  sales. 
People  who  dropped  in  to  look  around  went  away  with  a  purchase. 
They  simply  couldn't  resist  the  selling  argument.  Following  is 
a  copy  of  the  bulletin  sent  out  on  the  subject  of  chamois: 

The  President's  Sales  Promotion  Bulletin  No.  11 

CHAMOIS 
To  THE  Dow  Sales  Force  : 

As  you  already  know,  on  the  16th  inst.  there  will  go  on  sale  in  our  stores 
a  big  bargain  in  chamois.  This  is  a  special  sacrifice  price  and  we  probably 
can't  continue  these  prices  after  this  lot  is  sold.  Chamois  will  give  better 
service  and  last  longer  if  they  are  properly  cared  for.  Water  which  is  too 
hot,  or  extreme  heat  when  drying,  are  injurious.  Leaving  the  skin  wet, 
without  wringing  it  out,  when  not  in  use,  is  also  destructive.  Strong 
acids  and  impure  strong  soap  should  not  be  used  on  chamois.  It  is  also 
better  to  have  special  chamois  for  rough,  dirty  work.  After  being  used, 
chamois  should  always  be  washed  thoroughly,  in  luke-warm,  soapy  water; 
using  good  soap.  Then  rinse  in  clear  water,  wringing  the  chamois  as  dry 
as  possible,  pulling  it  out  as  nearly  as  possible  to  its  original  shape  and 
hanging  it  up  to  dry.  Do  not  dry  it  on  a  radiator  or  other  hot  place.  Do 
not  let  chamois  lie  around  dirty  for  a  considerable  period,  but  wash  as 
soon  as  possible  after  using.     Chamois  themselves  will  not  scratch  the 


TRAINING  MEN  FOR  PROMOTION  211 

finest  of  surfaces,  but  if  they  are  allowed  to  accumulate  dust,  grit,  and  dirt 
they  will  not  prove  satisfactory,  unless  they  are  washed  thoroughly  before 
using. 

All  these  points  should  be  carefully  explained  to  the  customer  as  a  matter 
of  DOW  SERVICE.  Most  of  the  customers  in  your  store  next  week  are 
possible  purchasers  and  you  should  suggest  chamois  to  each  of  them.  These 
chamois  have  been  retailing  anywhere  from  $4.00  to  $5.00  and  if  the  cus- 
tomer already  has  a  chamois  don't  fail  to  suggest  the  purchase  of  addi- 
tional ones  now  as  matter  of  economy,  because  the  price  will  be  higher. 
Suggest  the  various  household  uses — cleaning  pianos,  furniture,  windows, 
mirrors,  interior  wood  work,  and  polishing  floors,  bath  tubs,  wash  stands, 
pictures,  lamps,  sewing  machines,  and  all  such  similar  articles,  and  then,  of 
course,  their  very  general  use  for  automobiles. 

These  chamois  are  absolutely  "firsts,"  that  is,  perfect  in  every  way. 
Many  chamois  sold  are  "seconds,"  and  have  in  them  thin  places,  hard 
spots,  rough  spots,  and  various  blemishes.  There  is  not  a  second  in  this 
lot.  These  chamois  are  not  racked  chamois.  A  racked  chamois  is  one 
which  has  been  wet  in  manufacture  and  then  stretched  and  tacked  to  a 
board,  or  in  other  ways  held  in  place  until  it  is  dry.  It  is  then  much  larger, 
but  when  it  is  again  wet  and  dried,  it  will  shrink  back  to  its  original  size.  A 
racked  chamois  can  frequently  be  told  by  small  tack  holes  around  the  edge. 
This  is  good  selling  talk. 

D.  C.  Keller, 
President  and  General  Mgr. 

There  are  other  ways,  of  course,  of  instructing  the  sales 
force  as  to  the  product,  but  this  method  has  the  advantage  of 
novelty  and,  by  concentrating  sales  effort  on  the  article  or  product 
described,  the  clerk  is  able  to  see  immediate  results.  Thus  his 
cooperation  is  secured.  The  majority  of  small  chains  have  to 
educate  their  clerks  after  they  are  hired.  In  all  chains  there 
must  be  a  constant  driving  effort  to  keep  clerks  up  to  the  mark. 

Training  in  the  Right  Arrangement  of  the  Store. — The  arrange- 
ment of  branch  stores  is  strictly  in  accordance  with  the 
arrangement  of  the  model  store.  In  fact,  arrangement  is 
perfected  in  the  model  store.  The  model  allows  for  variations 
in  stock,  due  to  different  localities  and  their  varying  tastes,  etc. 
The  manner  in  which  the  stocks  may  be  alternated  is  shown.  All 
the  changes  in  stock  will  take  place  at  one  point,  or  if  at  more 
than  one  point,  the  salesman  is  taught  exactly  where  to  look. 
The  character  and  nature  of  the  article  in  those  particular  places 
indicates  to  him  what  has  been  dropped  or  changed  in  that  store. 
Methods  for  adding  new  counters  or  tables  to  handle  additional 


212 


CHAIN  STORES 


stock  during   heavy  seasonal  demands,  as  in  the  holidays,  arc 
shown. 

Figure  29   shows  arrangement  of  stock  in  the   Winchester 
Model  Store.     In  this  store  there  is  not  an  item  carried  in  stock 


ill    ^ 
m ' 

H      "  ■*  " 


43  44 


63         64 


fj if-  d 


78  79 


.ill 


Mliiitiii 

.  i  i 


iiaaaa  i 


!■■■■■ ■  ■ 


Fig.  29. — Section  of  display  panel  in  Winchester  store. 


which  is  not  shown  in  display.     Goods  are  stocked  behind  the 
panel  doors  shown  in  the  illustration. 

A  thorough  knowledge  of  the  arrangement  of  stock  as  plotted 
by  the  central  office  allows  clerks  to  be  shifted  from  one  store 
to  another  in  the  same  chain  without  the  slightest  confusion. 
It  is  another  step  in  standardizing  sales  service. 


TRAINING  MEN  FOR  PROMOTION  213 

Service. — Although  the  chain  stores  have  largely  cut  out  what 
had  been  known  as  service — credit,  deliveries,  returns,  etc., — it  is 
still  in  their  power  to  render  the  most  important  help  of  all,  and 
that  is  selling  service.  Display  will  sell  goods,  price  will  sell 
goods,  but  the  services  of  the  clerk  are  needed  to  make  a  complete 
combination.  The  customer  must  be  treated  in  such  a  way  that 
he  will  come  again.  And  this  is  the  reason  the  United  Cigar 
Stores  Co.  insists  upon  courtesy  to  the  customer  and  why  George 
J.  Whelan  says  if  he  wrote  a  bible  for  salesmen,  the  first  com- 
mandment would  be  "Thank  You."  Salesmen  are  given  a 
specific  order,  reading  as  follows: 

"Thank  you" 
"Always  acknowledge  a  purchase  with  a  genuine  'Thank  you,  Sir,' 
or  'Thank  you,  Madame,'  or  some  variations  of  the  phrase,  as  for 
example  'Many  thanks,'  or  'Much  obliged  to  you.'  Say  whatever  you 
say  out  loud  as  if  you  meant  it.  Under  no  circumstances  must  this 
rule  be  violated." 

Then  one  day  each  clerk  in  the  organization  received  a  tele- 
gram reading  "Did  you  say  'thank  you'  to  every  customer  you 
waited  on  today?"  Some  answer  had  to  be  made  and  replies 
flooded  the  central  office.  Mr.  Whelan  had  chosen  the  ''thank 
you"  phrase  as  the  slogan  of  courtesy  for  use  by  the  clerk. 

In  some  chains  clerks  are  told  to  remember  the  names  of 
customers.  All  these,  of  course,  are  old  tricks  of  salesmanship 
but  the  chains  have  done  more  towards  making  a  scientific  study 
of  retail  selling  than  any  other  retail  organizations  in  the  country, 
with  the  possible  exception  of  some  department  stores. 

Other  chains  dwell  on  the  value  of  a  smile  when  making  a 
sale,  others  on  an  even,  well-trained  voice.  But  the  point  is 
that  the  chain  organizations  train  their  men  to  treat  customers 
in  such  a  way  that  they  will  become  regular  patrons. 

Service  may  mean  many  things,  but  the  chain  store  definition 
is  service  by  the  salesmen  to  the  customers.  For  example,  the 
following  paragraphs  show  the  idea  of  service  which  is  taught  by 
the  Walgreen  Company,  which  operates  27  candy  and  drug  stores 
in  Chicago  and  vicinity,  (Quoted  from  Drug  Store  Merchandising) : 

1.  Employees  who  are  not  polite  to  every  customer  have  little  chance  of 
getting  on  whether  in  our  employ  or  in  the  employ  of  someone  else. 

2.  When  the  impossible  is  asked  for — be  pleasant,  that  is  service. 


214  CHAIN  STORES 

3.  Give  each  customer  your  whole  attention. 

4.  Give  as  much  attention  to  a  little  buyer  as  to  a  big  one. 

5.  Always  be  circumspect. 

6.  When  an  article  is  not  in  stock,  show  a  painstaking  desire  to  get  it 
for  the  customer. 

7.  Render  this  service  with  as  much  promptness  and  as  little  trouble  to 
the  customer  as  possible. 

8.  See  that  your  floors  are  always  clean,  they  mean  reputation  for  the 
company. 

9.  Service  is  a  matter  of  attitude  as  it  is  of  action.     You  must  bear  in 
mind  that  service  without  wholeheartedness  and  simple  kindness  is  useless. 

10.  Service  is  advertising  that  pays.  Such  advertising  is  in  your  power 
to  create. 

11.  Your  ability  is  judged  by  your  power  to  cooperate.  You  progress  by 
your  capacity  and  willingness  to  cooperate. 

12.  Executives  maintain  their  positions  because  they  can  cooperate  with 
other  executives  and  with  their  co-workers. 

13.  Make  your  cooperation  wholehearted  and  real.  It  is  more  than 
obeying  or  giving  orders.  It  means  working  with  one's  fellows  in  a  spirit 
of  helpfulness  and  good  fellowship.  It  means  avoiding  the  friction  of  inat- 
tention, deceit,  selfishness,  egotism.     In  other  words,  it  means  teamwork. 

The  chain  store  possesses  one  enormous  advantage  over  its 
independent  competitor.  With  the  exception  of  five  and  ten  cent 
stores  and  other  chains  where  the  mere  sales  clerk  has  little  or 
no  opportunity  for  advancement,  the  chain  clerk  finds  that  his 
service  to  the  customer  actually  pays  him  in  cash.  Where  a 
man's  own  interest  is  concerned,  there  is  ordinarily  little  difficulty 
in  obtaining  first  class  service  for  the  customer. 

Inspectors. — But  unless  the  company  devises  some  method  of 
keeping  track  of  the  salesman's  attitude  toward  the  customer,  the 
high  standard  which  has  been  set  by  the  educational  department 
will  be  lowered.  Sales  bulletins  and  letters  may  help,  but  the 
only  way  of  actually  overseeing  the  attitude  of  the  clerk  is  by 
personal  observation.  This  is  comparatively  simple  where  the 
chain  is  a  small  one  and  the  links  closely  connected.  Different 
members  of  the  organization  may  take  turns  inspecting  retail 
service. 

But  with  the  larger  chains  it  is  necessary  to  employ  inspectors 
who  are  unknown  to  the  employees  in  the  different  stores.  These 
inspectors  ask  innumerable  questions  before  purchasing  small 
articles.  They  may  even  try  to  annoy  the  salesman  deliberately 
with  a  view  to  ascertaining  his  reaction. 


TRAINING  MEN  FOR  PROMOTION  215 

It  is  frequently  found  that  no  endeavor  to  be  insulting  on  the 
part  of  the  inspector  succeeds  in  ruffling  the  composiu'e  of  the 
salesman.  He  neither  loses  his  temper  nor  can  he  be  tempted 
into  making  a  discourteous  retort.  He  frequently  sends  away 
the  customer  in  the  best  of  humor. 

It  often  develops  in  the  course  of  these  inspection  trips 
that  points  are  noted  which  prove  of  importance  enough  to  be 
incorporated  in  the  store  manual.  This,  after  all,  is  the  most 
important  part  of  the  inspector's  work.  Although  employees 
who  do  not  reflect  credit  on  the  company's  training  are 
eliminated,  it  is  the  constructive  selling  ideas  which  are  of  the 
most  benefit. 

Their  purpose  is  fourfold : 

1.  They  test  the  knowledge  of  the  salesman  in  regard  to  his  stock. 

2.  They  find  out  whether  he  is  tactful,  polite,  and  considerate  even  under 
provocation. 

3.  They  determine  whether  the  salesman  seeks  to  give  real  service  to  the 
patron. 

4.  They  collect  new  selling  ideas  which  may  be  applied  with  profit  to  the 
entire  organization. 

There  are,  of  course,  objections  to  this  practice;  but  in  general, 
it  makes  for  the  store's  efficiency. 

The  Saleswoman. — Far  less  has  been  done  in  the  line  of  training 
women  in  salesmanship,  principally  for  the  reason,  as  mentioned 
before,  that  the  chain's  efforts  were  directed  towards  educating 
men  for  store  managers  and  higher  positions.  But  there  are 
signs  that  executives  are  beginning  to  realize  the  advantage  to 
them  of  training  the  salesgirl.  The  following  is  taken  from  a 
notice  to  managers: 

"Do  you  realize  that  the  point  of  contact  with  the  bujdng  public 
is  through  your  salesgirl?  At  first  thought,  some  of  your  managers 
may  be  incUned  to  disagree  on  this  point.  A  few  may  think  that  we 
are  trespassing  on  their  ground.  But  consider  this:  A  manager's  time 
must  necessarily  be  divided  over  a  great  manj^  duties.  This  does  not 
leave  him  free  to  spend  his  entire  time  behind  the  counter.  Therefore, 
he  must  rely,  to  a  very  considerable  extent,  upon  the  cooperation  and 
loyalty  of  his  salesgirls. 

"Are  you  managers  just  paying  the  salesgirl  her  weekly  wage  and 
dismissing  all  further  responsibility  towards  her?  Or,  are  you  giving 
her  a  little  insight  into  your  business?    Have  you  convinced  her  that 


216  CHAIN  STORES 

yours  is  a  Quality  store  and  that  she  has  every  reason  to  be  proud  of 
standing  behind  your  counters  and  selling  Quality  goods?  Have  you 
made  her  feel  that  she  has  a  responsibility  in  the  successful  operation 
of  your  store?" 

The  New  York  Department  of  Labor  found  in  one  of  the 
smallest  up-state  stores  a  system  of  giving  sales  stimulus  to  the 
girls  by  means  of  an  "efficiency  rating  card."  The  manager, 
who  was  new  and  young,  gave  the  girl  with  the  highest  rating 
every  week  a  bonus.  Rating  was  apportioned  as  follows:  10 
per  cent,  for  discipline,  tidiness,  etc.;  10  per  cent,  for  general  ap- 
pearance of  counters  and  shelves;  5  per  cent,  for  having  counters 
and  shelves  filled ;  5  per  cent,  for  having  paper  and  cord  on  hand ; 
15  per  cent,  for  having  merchandise  displayed  for  selling  merits; 
15  per  cent,  for  having  the  under-counters  absolutely  clean  and 
in  order;  15  per  cent,  for  having  the  price  signs  in  the  right  places; 
10  per  cent,  for  remembering  to  register  money  before  wrapping; 
10  per  cent,  for  care  in  reducing  shrinkage,  and  5  per  cent,  for 
politeness  to  customers.  The  small  allowance  for  politeness  is 
significant  in  this  case  as  showing  the  attitude  of  the  five  and  ten 
cent  store  towards  the  actual  manner  of  making  sales. 

For  a  store  which,  like  the  five  and  ten  cent  store,  must  keep 
expenses  down  to  the  minimum,  such  a  system  offers  induce- 
ment to  the  girls  for  good  service  and  at  the  same  time  does  not 
appreciably  increase  wage  expenses.  One  five  and  ten  cent 
store  chain  has  a  special  training  force  of  six  women  who  are 
constantly  on  the  road  opening  new  stores,  selecting  employees, 
and  adjusting  grievances  in  stores  already  opened.  Another 
chain  endeavored  to  get  local  managers  to  start  classes  among  the 
sales  girls  for  training  in  salesmanship. 

Conclusions. — As  conclusion  to  this  chapter,  one  of  the  general 
letters  sent  out  by  this  chain  for  these  training  classes  shows 
the  type  of  educational  matter  best  fitted  for  the  salesgirl. 

General  Letter 
Training  op  Sales  Force 

The  following  article  is  copied  from  a  current  magazine : 

A  Cause  and  a  Cure 

Desiring  to  learn  the  reason  why  certain  retail  customers  had  discon- 
tinued buying  goods  from  them,  a  large  department  store  made  an  investi- 


TRAINING  MEN  FOR  PROMOTION  217 

gation  among  197  different  households,  as  a  result  of  which  they  compiled 
the  following  statistics.     Here  is  what  the  customers  gave  as  their  reason: 

1.  indifference  of  salespeople 47 

2.  Attempts  at  substitution 24 

3.  Errors 18 

4.  Tricky  methods 16 

5.  Slow  deliveries. 17 

6.  Over-insistence  of  salespeople 16 

7.  Insolence  of  salespeople 16 

8.  Unnecessary  delays  in  service 13 

9.  Tactless  business  policies 11 

10.  Bad  arrangement  of  store 9 

11.  Ignorance  concerning  goods 6 

12.  Refusal  to  exchange  goods 4 

Total 197 

The  fact  which  is  most  forcibly  brought  out  in  these  statistics  is  the  large 
percentage  of  reasons  given  for  which  the  clerks  or  salespeople  were  directly 
responsible.  There  are  the  ones  numbered  1,  2,  6,  7,  and  11  in  the  table 
shown. 

Here  are  109,  at  least,  out  of  the  197  households  interviewed,  or  a  little 
over  55  per  cent.,  who  gave  such  reasons  as  indifference,  insolence,  ignorance, 
and  over-insistence  on  the  part  of  the  sales  people  as  the  cause  of  the  dis- 
continuance of  their  patronage. 

When  it  comes  down  to  a  final  analysis  of  the  situation,  the  clerks  were 
not  so  much  to  blame  as  the  store  management.      .    .    . 

In  this  connection,  we  cannot  over-emphasize  the  importance  of  the 
saleswoman's  position  in  your  store,  as  the  connecting  link  between  the 
management  and  the  customer. 

The  advantage  of  training  men  for  promotion  has  been  amply 
proved  by  experience.  The  advantage  of  training  salesmen  and 
salesgirls  in  standardized  chain  methods  of  service  and  salesman- 
ship is  becoming  more  and  more  apparent.  It  cannot  help 
succeeding  because  it  is  economically  profitable  to  all  parties 
concerned. 

1.  The  chain  obtains  a  larger  volume  of  sales. 

2.  The  clerks  obtain  a  larger  bonus  and  more  rapid  promotion. 

As  a  general  thing,  the  better  training  the  clerks  receive, 
the  better  type  of  personnel  is  secured,  more  profits  accrue,  and 
better  wages  can  be  paid. 


CHAPTER  XIV 
MAINTAINING  MORALE 

Outline 

Methods  of  obtaining  morale. 

1.  Conferences. 

2.  Bulletins  and  letters. 

3.  Contests. 

4.  Rewards  and  special  bonuses. 

5.  Organization  magazine. 
Conferences. 

1.  Strictly  business. 

(a)  Held  at  regular  periods. 

1.  Meeting  of  managers. 

2.  Meeting  of  district  heads. 

3.  Meeting  of  store  force. 

2.  Partly  business. 

(a)  Annual  conventions. 

(b)  Dinners. 

3.  Results. 

(a)  Confidence  in  organization. 
(6)  Spirit  of  good  fellowship  among  personnel. 
Bulletins  and  letters. 
1.  Should  combine 
(a)  Instruction. 
(6)   Stimulus. 

(c)  Praise  or  blame. 
Contests 

1.  Components  of  good  contest, 
(a)  To  stimulate  interest. 
(6)   Bring  the  winner 

1.  Notoriety. 

2.  Cash. 

3.  Both. 
Rewards. 

1.  Recognition  of 

(a)  Unusual  service. 
(,6)  Unusual  merit, 
(c)  Long  service. 

218 


MAINTAINING  MORALE  219 

House  magazine. 

1.  Published  in  interest  of  personnel. 

2.  Maintains  contact 

(a)  Between  various  links  in  organization. 

(b)  By  personal  bits  of  information. 

(c)  By  photographs. 

3.  Makes  known  the  policy  of  the  company. 

(a)  Articles  by  executives  published. 

4.  Policy  of  magazine  must  be  in  accord  with  policy  of  organization. 
Results  of  morale. 

1.  Discipline. 

(a)  Importance  of  rules. 

1.  Each  store  representative  of  the  whole  organization. 

(b)  Necessity  of  making  clerks  see  it  is  for  their  own  good  to  main- 

tain discipline. 

2.  Teamwork. 

(a)  Feeling  of  goodwill  among  employees 

1.  Towards  company. 

2.  Towards  each  other. 

3.  Increased  profits 

(a)  For  company. 

(6)   For  individual  members  of  personnel. 


CHAPTER  XIV 
MAINTAINING   MORALE 

The  morale  of  an  organization  may  be  called  its  mental  state. 
This  mental  state  is  not  stationary,  but  is  constantly  fluctuating 
in  response  to  the  many  influences  brought  to  bear  from  all 
sides  on  the  company  and  its  employees.  The  company  which 
maintains  the  morale  of  its  organization  at  a  high  pitch  is  usually 
successful  financially,  because  an  upward  trend  in  morale  is 
directly  reflected  in  profits. 

"Good  morale,"  says  R.  S.  Woodworth,  in  his  book  on  Psy- 
chology, "means  more  than  willingness  for  duty;  it  means  'pep' 
or  positive  zest  for  action.  Where  the  master  is  able,  in  the 
first  place,  to  show  the  servant  the  objective  need  and  the  value 
of  the  goal,  and  to  leave  the  initiative  in  respect  to  ways  and 
means  to  the  servant,  looking  to  him  for  results,  the  servant  often 
responds  by  throwing  himself  into  the  enterprise  as  if  it  were 
his  own — as,  indeed,  it  properly  is  in  such  a  case." 

The  aim  of  all  methods  of  personnel  administration  is  to  main- 
tain this  morale,  and,  where  it  did  not  previously  exist,  to  build 
it  up.  Maintaining  morale  for  the  chain  store  organization  is 
especially  important  because  of  the  geographical  distances 
separating  the  various  Unks  and  the  consequent  impossibihty 
of  individual  supervision  of  the  personnel.  Therefore,  this 
feeling  of  interest  in  the  company  and  its  activities  which  we  call 
morale  must  be  kept  up  by  other  means. 

In  the  case  of  a  factory,  morale  is  a  factor  in  production; 
in  the  case  of  a  chain  store  organization,  it  is  a  factor  in  selling. 
To  obtain  maximum  results,  it  is  necessary  to  analyze  morale 
and  ascertain  by  what  means  it  can  best  be  secured. 

The  Elements  of  Morale. — There  are  five  points  to  be  con- 
sidered ordinarily  by  the  chain  management  in  its  efforts  to 
improve  and  maintain  its  morale. 

1.  The  company  must  inspire  the  employee  with  confidence 

220 


MAINTAINING  MORALE  221 

in  it,  in  its  officers,  and  in  its  policies.  This  is  a  necessary 
requisite  for  morale,  since  there  can  be  no  discipline  and  team- 
work where  there  is  no  confidence. 

2.  The  company  must  give  its  employees  some  financial  interest 
in  the  business  as  a  reward  for  efficient  service. 

3.  The  employee  must  feel  he  is  working  towards  a  definite 
goal.  Through  his  own  experience  and  by  observing  others  he 
must  realize  that  promotion  is  won  mainly  by  his  own  efforts. 
He  should  be  shown  how  he  is  progressing  from  week  to  week  and 
from  month  to  month. 

4.  The  element  of  competition  should  be  present.  The  clerk 
in  the  store  should  be  able  to  compare  his  achievements  with 
those  of  clerks  in  other  stores.  Furthermore,  some  degree  of 
responsibility  should  be  thrown  upon  his  shoulders. 

5.  The  company  should  try  to  make  its  employees  feel  that 
they  are  members  of  one  family.  That  is,  it  must  make  them 
acquainted  with  each  other  and  with  the  company.  The  em- 
ployee should  feel  that  what  touches  the  company's  welfare 
touches  his  as  well. 

No  organization  can  score  100  per  cent,  on  the  question  of 
morale,  but  it  is  possible  to  maintain  morale  at  a  high  level. 
It  is  generally  accomplished  by  the  use  of  some  or  all  of  the 
methods  discussed  in  the  rest  of  this  chapter.  Which  particular 
methods  are  used  depends  a  great  deal  on  the  size  of  the  chain 
and  also  on  the  size  of  the  units  in  the  chain.  The  question  of 
morale  in  a  five-  and  ten-cent  store  organization  has  two  aspects 
first  the  morale  of  the  store  employees  in  relation  to  the  store, 
and  second  the  morale  of  the  store  manager  in  relation  to  the 
whole  organization.  The  small  chain  can  do  without,  and,  in 
fact,  from  motives  of  economic  operation,  must  do  without  such 
methods  of  maintaining  morale  as  the  house  organ.  In  the 
very  small  chain  morale  is  enforced  and  maintained  by  daily 
personal  visits  of  the  executive.  It  is  also  possible  for  the 
various  store  managers  to  hold  frequent  conferences.  But, 
although  methods  differ,  the  purpose  remains  the  same,  namely, 
to  secure  the  cooperation  of  the  employee  in  the  activities  of  the 
company. 

Methods  of  Creating  Morale. — There  are  five  ordinary 
methods  of  securing  proper  morale: 


222  CHAIN  STORES 

1.  Conferences. 

2.  Daily  letters  and  bulletins. 

3.  Contests. 

4.  Rewards  and  special  bonuses. 

5.  A  house  organ. 

The  first  two  methods  will  make  the  employees  of  the  company 
interested  in  their  work  and  confident  in  their  own  future  as 
well  as  that  of  the  company.  Contests  bring  in  the  element  of 
competition.  Rewards  and  bonuses  give  that  financial  stimulus 
which  chain  organizations  have  found  essential,  and  the  house 
organ  endeavors  to  create  the  family  spirit,  to  acquaint  the 
employees  with  the  policies  of  the  company,  and  to  furnish  a 
medium  of  publicity. 

Conferences. — Conferences,  of  one  kind  and  another,  are 
essential.  In  all  chains  they  should  form  part  of  the  routine. 
There  are  several  types  of  conferences,  strictly  business  meetings, 
confined  mainly  to  executives  and  store  managers,  and  meetings 
which  aim  to  introduce  the  element  of  good  fellowship,  such  as 
dinners  and  conventions. 

Some  chains  have  an  annual  convention  at  which  all  managers 
attend  who  can  possibly  do  so.  Policies  and  plans  for  the  coming 
year  are  outlined  and  explained.  The  various  local  men  have  an 
opportunity  to  get  away  from  the  somewhat  narrowing  precincts 
of  their  own  stores  and  to  obtain  a  broader  view  of  the  organiza- 
tion in  its  entirety. 

Conferences  during  the  year  are  often  held  at  stated  intervals. 
Where  chains  are  limited  in  geographical  extent,  all  managers 
can  usually  attend.  Where  chains  are  more  extended,  district 
conferences  may  be  held,  and  the  problems  brought  up  at  that 
time  discussed  a  second  time  in  a  conference  of  district  managers. 
Conferences  may  take  the  form  of  dinners  when  it  is  believed  the 
more  informal  atmosphere  will  lead  to  better  results. 

Where  the  personnel  of  a  single  store  is  fairly  large,  as  in  a 
department  store  or  five-  and  ten-cent  store,  conferences  and 
meetings  should  be  held  frequently.  As  mentioned  previously, 
these  conferences  may  be  made  the  occasion  of  instructing  sales- 
men and  salesgirls  in  better  methods  of  salesmanship. 

Some  chains  have  adopted  a  policy  of  giving  outings  to  which 
all  employees  are  invited.  Such  a  policy  increases  the  feeling  of 
goodwill  among  the  organization. 


MAINTAINING  MORALE  223 

Special  conferences  may  be  held  when  the  percentage  of  a 
certain  member  store  shows  a  marked  falling  off.  The  entire  staff 
may  be  called  in  to  go  over  the  specific  problems  of  the  particular 
store.  This  avoids  any  unjust  action.  Reprimands  often  do 
more  harm  than  good,  especially  as  investigation  frequently 
shows  that  bad  conditions  are  due  to  external  circumstances  not 
apparent  at  first  glance. 

Bulletins  and  Letters. — Keeping  up  morale  is  a  ceaseless  task. 
Good  advice  and  good  intentions  are  lost  sight  of  unless  in  some 
way  brought  to  mind.  The  store  manager  appreciates  help  of 
this  nature.  He  is  constantly  reminded  of  what  he  already 
knows  but  is  in  danger  of  forgetting  in  the  stress  of  the  day's 
work  and  the  monotony  of  his  routine. 

Perhaps  these  bulletins  give  pointers  and  tips  as  to  selling 
goods.  Perhaps  there  is  a  list  of  averages  in  which  he  can  find 
the  position  of  his  own  store.  A  mere  list  of  changes  in  price 
of  products  to  be  sold  usually  forms  a  part  of  the  bulletin,  and, 
although  a  necessary  part,  still  it  is  just  as  necessary  to  keep 
in  mind  the  question  of  the  store  manager's  morale. 

In  writing  these  bulletins  there  is  danger,  on  the  one  hand, 
of  becoming  too  prosy  and  on  the  other,  to  use  the  vernacular, 
too  "peppy."  There  is  a  point  between  the  two  as  is  well  shown 
by  the  following  extract  on  the  subject  of  window  trims.  See 
how  cleverly  instruction,  stimulus,  and  praise  are  mingled: 

"Which  One  of  the  Five  Senses  Produces  the  Most  Dollars?" 

"Is  it  the  sense  of  sight- — or  the  sense  of  hearing — or  the  sense  of 
smell — or  the  sense  of  taste — or  the  sense  of  touch? 

"A  recent  investigation  was  made  to  determine  through  which  one 
of  the  five  senses  sales  were  really  made.  The  results  were  astounding: 
87  per  cent,  of  the  people  bought  the  things  they  saw  (in  the  windows,  on 
the  counters,  in  the  showcases,  etc.);  7  per  cent,  bought  as  a  result  of 
hearing;  3^  per  cent,  through  the  sense  of  smell;  1^  per  cent,  through 
the  sense  of  touch;  1  per  cent,  through  the  sense  of  taste. 

"Think  of  it! — 87  per  cent,  of  the  people  buy  by  sight.  Doesn't  that 
drive  home  the  importance  of  attractive  window  displays?  Doesn't 
that  make  you  stop  and  wonder  whether  your  displays  are  as  attractive 
as  they  can  possibly  be?  Doesn't  that  make  you  realize  that  the  time 
and  effort  you  put  forth  to  trim  your  windows  is  worth  everything  to 
you? 


224  CHAIN  STORES 

"Maybe  you  are  smiling  as  you  read  this.  Perhaps  you  are  saying 
to  yourself  that  it  is  old  stuff.  Yet,  we  wonder  how  your  windows  look 
at  eight  in  the  morning.  We  wonder  whether  they  are  bare  or  there! 
We  wonder  if  you  are  saying  that  you  can't  trim  your  windows  early 
because  your  stuff  isn't  out  of  the  oven  yet.  We  wonder  if  you  feel 
that  it  isn't  worth  the  effort  to  trim  windows  before  noon  because  nobody 
passes  your  store  before  10  a.m. — and  as  we  wonder,  we  keep  on  produc- 
ing display  ideas  and  showcards  just  because  we  known  that  our  pro- 
gressive managers  are  everlastingly  looking  for  new  stuff — new  thoughts 
— new  displays — anything  and  everything  that  will  help  them  to  make 
their  windows  more  attractive. 

"  We  know  that  the  live  Federal  managers  have  a  window  trim  of  some 
sort  at  8  a.m.,  even  if  it  is  just  a  few  cards  placed  in  the  window — anj'- 
thing  to  give  the  appearance  that  they  are  still  in  business — anything  to 
attract  the  attention  of  the  average  person  who  passes  the  store  from 
eight  until  noon. 

"And  as  you  read  this  message,  do  you  wonder  why  the  stores  that 
always  have  attractive  windows  usually  do  the  most  business?" 

"Has  this  straight-from-the-shoulder  message  convinced  you  that 
of  the  five  senses,  the  sense  of  sight  can  produce  more  dollars  than  all 
the  others?    We  wonder!" 

Note  that  the  above  article  first  proves  the  value  of  window 
displays  in  making  sales,  then  applies  it  to  the  particular  problems 
of  the  Federal  System  of  Bakeries,  and  finally  brings  the  matter 
down  to  the  store  manager  himself,  telling  him  how  to  use  this 
bulletin  to  increase  his  sales.  It  is  well-written  and  neither  too 
dignified  nor  too  familiar.  Such  bulletins  as  this  prove  helpful 
in  the  maintenance  of  morale. 

Contests. — Nothing  is  better  for  the  morale  of  the  organization 
than  a  good  contest  with  some  worth-while  prizes  for  the  winner. 
Everybody  is  on  his  or  her  tiptoes,  and  sales  are  bound  to  pick 
up.  From  the  chain's  point  of  view  it  is  like  the  man  who 
advertised  he  would  give  $5  for  the  best  bushel  of  potatoes 
he  received  by  a  certain  date,  and  in  a  few  days  had  received  more 
than  a  hundred  bushels  of  prize  potatoes.  The  chain  pays  a 
small  amount  to  the  winner  and  received  in  return  the  united 
efforts  of  the  sales  personnel.  There  is  a  definite  goal  in  view  and 
each  member  has  an  opportunity  to  show  what  he  or  she  can  do. 

The  most  common  plan  is  to  give  cash  prizes  to  stores  making 
the  most  sales,  to  be  divided  among  the  employees  of  that  store. 


MAINTAINING  MORALE  225 

The  contest  may  take  the  form  of  the  store  making  the  most 
sales  winning,  or  it  may  be  the  store  which  shows  the  greatest 
improvement  in  sales  over  the  previous  month. 

The  Federal  System  of  Bakeries  has  evolved  a  rather  novel 
contest  idea.  The  contest  is  treated  as  a  horse  race,  each 
store  serving  as  a  horse  and  each  manager  as  a  jockey.  The 
races  are  divided  into  various  events.  There  are  national 
races  and  in  addition  there  are  inter-district  races.  For  exam- 
ple, in  July  1921,  a  purse  of  $300  was  divided  with  three  prizes 
for  each  of  the  six  districts  in  the  country. 

The  results  are  reproduced  from  the  Federal  Sunlight  Maga- 
zine with  details  of  the  contest  in  the  first  district. 

SUMMABY    OF    JuLY    InTER-DiSTRICT   RaCES 

A  total  purse  of  $300.00,  divided  six  ways  to  cover  the  six  events  which 
constituted  the  July  Inter-District  Races,  was  awarded  as  follows: 

1st  Race — The  Knickerbocker  Special 

First    —Little  Falls,  N.  Y $25.00 

Second — Stamford,  Conn 15 .  00 

Third  —Amsterdam,  N.  Y 10.00 

2d  Race — The  Keystone  Handicap 

First    —Elizabeth,  N.  J $25 .  00 

Second — Meadville,  Pa 15.00 

Third  — Duquesne,  Pa 10.00 

3d  Race — The  Southern  Sweepstakes 

First    — Valdosta,  Ga $25.00 

Second — Brunswick,  Ga 15. 00 

Third  —Jacksonville,  Fla.,  No.  1 10. 00 

4th  Race — Great  Lakes  Special 

First    —Rock  Island,  111.,  No.  3 $25 .  00 

Second— Wabash,  Ind 15 .  00 

Third  —Belleville,  111 10. 00 

5th  Race — Mississippi  River  Suburban 

First    —Davenport,  la..  No.  2 $25.00 

Second— Knoxville,  Tenn.,  No.  1 15.00 

Third  —Springfield,  Mo.,  No.  1 10. 00 

Qth  Race — Great  Western  Derby 

First    — Bartlesville,  Okla $25.00 

Second — Long  Beach,  Cal 15 .  00 

Third  —Okmulgee,  Okla 10. 00 

Reports  of  how  races  were  run.     (Note:  Names  of  jockeys  have  been 
changed  in  some  instances,  but  official  rewards  for  July  are  as  given.) 
15 


226 


CHAIN  STORES 
First  Race 


Horses 

Jockeys 

Posi- 
tion 
at 
finish 

Percentage 

of  increase 

in  retail 

sales  for 

July  over 

June 

Little  Falls,  N.  Y 

Stamford,  Conn 

Amsterdam,  N.  Y 

Norwalk,  Conn 

Albany,  N.  Y 

Freeport,  L.  I.,  N.  Y 

Lynn,  Mass 

Rome,  N.  Y 

Hempstead,  N.  Y 

Bridgeport,  Conn 

Boston,  Mass.,  No.  4 — 

Dock  Square 

Mt.  Vernon,  N.  Y 

Binghamton,  N.  Y 

Rochester,  N.  Y 

Peekskill,  N.  Y 

Jamaica,  N.  Y 

Yonkers,  N.  Y 

Boston,  Mass.,  No.  5 — 

Massachusetts  Ave 

E.  J.  Andrews 
Mrs.  Mabel  Carrow 
J.  A.  Schmidt 
G.  N.  Carrow 
Mary  Murphy 
Lela  Hatch 
John  Riley 
Mrs.  Lee  O'Brien 
Frank  H.  Baker 
Frank  Oberg 

K.  O'Hara 
W.  R.  Anderson 
Mrs.  Chris  Bleichert 
Albert  H.  Royer 
Mrs.  R.  Payne 
A.  F.  Schneider 
H.  J.  Konecny 

A.  M.  Hobart 

1 
2 
3 
4 
5 
6 
7 
8 
9 
10 

11 

12 
13 
14 
15 
16 
17 

18 

24.0 
17.4 
16.7 
14.6 
12.7 
11.5 
11.0 
10.3 
9.1 
7.8 

7.6 
7.4 
7.2 
6.5 
5.4 
3.9 
3.0 

0.6 

Also  ran  in  order  named:  Boston,  Mass.,  No.  3,  Canal  St.;  Boston,  Mass., 
No.  1,  Federal  St.;  White  Plains,  N.  Y.;  Flushing,  N.  Y.;  Boston,  Mass., 
No.  2,  Tremont  St.;  Elmira,  N.  Y.;  Holyoke,  Mass.;  Brooklyn,  N.  Y.; 
Syracuse,  N.  Y.;  Northampton,  Mass.;  Westfield,  Mass.;  Buffalo,  N.  Y.; 
New  York  City,  No.  4. 

Remarks:  Little  Falls  turned  in  a  remarkable  performance  and  led  all 
the  way.  Stamford,  the  favorite,  could  not  get  up.  Amsterdam,  who 
finished  third,  ran  a  pretty  race.  Bridgeport  and  Albany  were  raced  into 
submission  by  Norwalk.  The  others  never  had  a  chance.  Winner  trained 
by  T.  J.  Madden. 

A  contest,  to  be  successful,  must  stimulate  enough  interest 
to  bring  the  winner  either  money,  notoriety,  or  both.  The  more 
publicity  given  to  these  contests,  the  better  success  they  have. 
If  no  house  organ  is  published,  bulletins  should  be  sent  out.  If 
the  contest  stretches  over  a  long  period,  bulletins  should  be 
sent  out  giving  the  status  of  the  contestants. 


MAINTAINING  MORALE  227 

Rewards. — Rewards  are  closely  allied  with  contests,  the  differ- 
ence being  that  in  the  latter  case  there  is  open  competition,  and 
in  the  former  the  result  is,  as  a  rule,  unsolicited.  For  example, 
when  an  employee  of  the  Whelan  organization  performs  any 
service  which  brings  him  to  the  attention  of  the  main  office, 
Mr.  Whelan  would  write  him  a  personal  letter  of  commendation 
and  thanks.  Inasmuch  as  contests  and  rewards  must  have 
publicity  to  be  effectual,  the  letter  is  mailed  in  a  flaring  red  en- 
velope so  that  everyone  in  the  office  or  store  cannot  help  knowing 
it  has  been  received  and  the  nature  of  the  contents.  To  make 
matters  doubly  certain,  the  reward  is  announced  in  the  monthly 
bulletin. 

Most  chains  give  Christmas  presents,  at  which  time  special 
merit  may  be  rewarded.  Frequently  the  basis  of  the  amount  of  a 
Christmas  present  is  the  length  of  service,  thus  placing  a  premium 
on  steady  employment. 

All  bonuses  are  in  the  nature  of  a  reward  for  work  and  atten- 
tion above  the  average,  but  reward  in  the  sense  of  being  limited 
to  recognition  of  acts  on  the  part  of  the  employees  beyond  the 
mere  duty  of  routine  selling  and  managing.  Recognizing  such 
acts  is  an  excellent  method  of  acquiring  the  goodwill  of 
the  employees. 

The  House  Organ. — House  organs  published  by  chain  organi- 
zations are  employee  publications,  or  internal  house  organs. 
They  are  published  solely  in  the  interests  of  the  personnel.  A 
house  organ  is  one  of  the  methods  of  maintaining  morale  where 
personal  contact  is  lacking.  It  reproduces  the  results  of  contests, 
gives  personal  news  about  the  various  employees,  and  their 
views  on  different  company  matters.  It  is  not  only  a  clearing 
house  for  gossip  but  should  also  contain  certain  "inspired" 
articles  from  the  central  office. 

Robert  E.  Ramsay  has  made  an  excellent  summary  of  the 
vital  points  to  be  kept  under  constant  consideration  in  editing  a 
house  organ  of  this  nature. 

1.  Analysis  of  the  policy. 

2.  Purpose. 

(a)  Sales. 

(b)  Goodwill. 

(c)  Educational. 


228  CHAIN  STORES 

3.  The  editor.. 

4.  The  name — a  freak  or  unusual  name  will  not  wear  well  and  may  lead 

to  discontinuance. 

5.  A  sub-title  which  makes  clear  the  plan  and  purpose  of  the  publication. 

6.  Size  and  analysis  of  the  field  to  be  reached. 

7.  Frequency  of  issue — very  important  and  must  be  lived  up  to. 

8.  Cover  design. 

(a)  Permanent. 

(b)  Changed  each  issue. 

9.  Style  of  appeal. 

(a)  Language. 
(6)  Personality. 

(c)  Atmosphere. 

In  addition  to  these  points  it  is  very  necessary  to  make  a 
budget  of  expenses  of  publication.  Owing  to  the  constant  circu- 
lation, this  should  not  be  difficult.  All  material  is  either 
"inspired"  from  headquarters,  prepared  by  the  editor,  or  got 
from  the  branches  and  their  personnel.  There  is  no  difficulty  in 
obtaining  material,  due  to  the  universal  desire  to  appear  in  print. 

There  is  one  important  point  to  observe  in  editing  the  house 
organ  and  that  is  a  careful  agreement  between  the  policy  of  the 
house  and  the  policy  of  the  pubHcation.  The  two  must  be 
identical.  One  other  point  to  remember  is  that  the  average 
person  objects  to  "ginger"  and  "pep"  literature.  He  would 
much  prefer  a  simple,  lucid  explanation  of  the  facts  and  how  they 
apply  to  him.  All  sermonizing  and  moralizing  should  be 
done  carefully.  A  busy  salesman  has  no  time  to  read  sermons. 
But  he  will  read  articles  about  his  business  and  about  himself 
and  about  the  other  members  of  the  personnel,  because  he  is 
interested. 

House  organs  are  ordinarily  illustrated  with  photographs 
of  various  members  of  the  personnel,  their  stores,  their  sweet- 
hearts, etc.  The  Federal  Sunlight  Magazine  has  the  back  cover 
made  so  that  it  can  be  cut  out  and  used  for  a  window  paster  by 
the  manager. 

The  editor  of  the  magazine  should  be  in  the  closest  touch  with 
the  controlling  head  of  the  business,  who  often  looks  over  the 
proof  before  printing.  The  editor  himself,  according  to  Mr. 
Ramsay,  must  be  author,  feature  writer,  advertising  man, 
investigator,   salesman,   preacher  without  seeming  to   preach, 


MAINTAINING  MORALE  229 

teacher  without  seeming  to  teach,  reporter,  proof  reader,  and 
planner. 

To  conclude,  the  editor  of  "The  Acme  Special,"  Fred.  B. 
Barton,  says:  "We  try  to  have  this  paper  hold  the  Acme  family 
together  in  a  unit,  to  keep  up  the  family  feeling,  even  though 
Bill  Jones  at  Acme  6  may  only  see  Tom  Smith  at  Acme  56  once 
a  year.  Also  we  mix  in  a  little  educational  and  inspirational 
matter  now  and  then.  We  believe  that  the  paper  has  some  effect 
in  making  men  satisfied  with  their  jobs  and  encouraging  them 
to  grow  into  better  positions  and  to  look  ahead  to  a  real  future 
with  our  company." 

Enforcing  Morale  and  Results. — There  are  two  methods  of 
checking  up  the  morale  of  a  chain  organization.  The  first  is  to 
employ  a  corps  of  inspectors  who  will  personally  see  that  the 
f)oUcies  and  plans  of  the  central  office  are  carried  out.  The 
second  is  to  allow  the  personnel  to  evolve  its  own  morale  under 
th3  inspiration  and  educational  leadership  of  the  head  office.  By 
the  second  method  the  responsibility  is  as  far  as  possible  shifted 
from  the  chain  to  the  employees. 

But,  however  spontaneous  the  maintenance  of  morale  may 
become,  the  central  office  of  the  chain  must  exercise  some  super- 
vision. In  large  organizations  this  can  be  done  only  through  a 
special  department  which  will  be  in  part  the  personnel  depart- 
ment, although  it  may  go  under  a  variety  of  names.  In  smaller 
chains,  this  supervision  must  be  exercised  by  some  other  depart- 
ment, probably  the  sales  department. 

Good  morale  manifests  itself  in  the  three  following  ways : 

1.  Effective  discipline,  cheerfully  submitted  to. 

2.  Spirit  of  cooperation. 

3.  Increased  profits  to  personnel  and  company. 

The  first  two  are  necessary  to  produce  the  last.  Other  things 
being  equal,  if  the  first  two  can  be  secured,  the  last  will  follow  as  a 
natural  corollary. 

Discipline. — What  does  discipline  mean  to  a  chain  organiza- 
tion? It  does  not.  necessarily  mean  that  the  assistant  must  say 
"Mister"  when  addressing  the  manager,  as  one  chain  vainly 
attempts  to  enforce.  It  is  something  much  broader  and  more 
important.     In  a  way,  every  branch  store  in  the  chain  and  every 


230  CHAIN  STORES 

clerk  in  the  store  is  representative  of  every  other  store  and  clerk 
in  the  chain.  If  one  manager  allows  his  store  to  become  dirty 
and  remain  so,  the  trouble  is  not  confined  to  his  store  or  to  him 
alone,  but  all  the  other  stores  doing  business  under  the  same 
name  suffer  also.  Thus  discipline  in  a  chain  organization  means 
the  uniform  observance  of  policies  laid  down  by  the  central 
oflBce  as  wise  and  proper. 

If  it  is  decided  that  stores  should  open  at  eight  o'clock,  there 
should  be  no  exceptions  without  excellent  reason.  It  is  easy 
to  see  that  a  customer  who  is  used  to  buying  from  one  store  in 
the  chain  which  opens  at  eight  o'clock  would  not  be  pleased 
on  going  to  another  store  in  the  same  chain  to  find  that  it  opens 
at  nine.  If  a  clerk  in  one  store  of  the  chain  sends  away  a 
disgruntled  customer,  that  customer  will  hesitate  to  go  to 
another  store  in  the  chain,  no  matter  how  amiable  its  clerks 
may  be. 

A  high  morale  enforces  discipline  because  the  clerks  can  be 
brought  to  see  that  discipline  must  be  enforced  for  the  good 
of  everyone  concerned.  Rules  and  regulations  become  but 
printed  words  without  effect  unless  there  is  some  method  of 
enforcing  them.  The  best  method  yet  found  lies  in  the  interest 
of  the  employee  to  obey  them  without  constant  inspection.  The 
methods  of  building  up  morale,  previously  described,  should 
have,  therefore,  as  one  of  their  first  effects,  the  maintenance  of 
discipline. 

Teamwork. — Teamwork  is  an  essential  part  of  chain  store 
organization,  especially  since  the  organization  must  of  necessity 
be  so  loosely  joined.  Therefore,  another  beneficial  result  of 
maintaining  a  high  morale  is  a  spirit  of  cooperation,  not  possible 
to  define  in  so  many  words,  but  possible  to  understand.  A 
chain  of  stores  is  a  very  sensitive  mechanism  and  only  the  most 
careful  attention  to  routine  makes  it  possible  for  it  to  function 
well  and  efficiently.  Thus,  cooperation  between  all  links  of 
the  personnel  is  a  fundamental  requisite. 

A  chain  which  does  not  possess  the  goodwill  of  its  employees 
may  be  counted  a  failure.  No  matter  how  methodical  and 
machine-like  its  methods  of  supervision,  it  cannot  substitute 
methods  for  men.  A  chain  store  organization  must  build  up  a 
structure  of  personalities,  not  of  mere  store  fronts. 


MAINTAINING  MORALE  231 

A  high  morale  creates  interest  in  the  work  because  it  points 
out  where  the  employee  may  better  himself  and  get  in  line  for 
rapid  promotion.  The  best  system  of  morale  is  one  which  points 
out  where  the  individual  himself  can  benefit.  The  fundamental 
idea  is  to  work  together  for  the  benefit  of  each  one. 

Conclusions. — The  question  of  morale  lies  between  the 
employer  and  the  worker.  Although  it  is  to  the  ultimate  benefit 
of  both  parties,  the  incentive  and  the  control  must  be  furnished 
by  the  management.  The  employee  must  in  a  variety  of  ways 
be  made  to  feel: 

1.  That  the  enterprise  is  his. 

2.  That  he  is  fairly  treated. 

3.  That  he  has  a  just  share  in  the  proceeds. 

4.  That  he  has  a  genuine  interest  in  the  purpose  of  the  concern. 

5.  That  he  is  interested  in  the  work  itself. 

The  composite  effect  will  show  itself  in  an  excellent  esprit  de 
corps.  This  morale,  in  turn,  will  cause  greater  sales  effort,  as 
well  as  better  coordinated  sales  effort.  In  fact,  for  the  loosely 
jointed  chain  organization,  the  practical  alternatives  are  between 
creating  and  maintaining  good  morale  and  suffering  under  the 
hardship  of  the  indifference  and  even  hostility  of  the  employees. 


CHAPTER  XV 
THE  STORE   MANAGER 

Outline 

Requisites. 

1.  Personal. 

(a)  Interest  in  work. 

(6)  Oblivious  of  long  hours. 

(c)  Courtesy. 

(d)  Honesty. 

2.  Managerial. 

(a)  Sales  personality. 

(b)  Ability  to  handle  subordinates. 

(c)  Judgment. 
Duties. 

1.  Clerical. 

(a)  Make  daily  reports. 

1.  Sales  report. 

2.  Merchandise  requirements. 

3.  Expenses. 

4.  Miscellaneous. 

2.  Financial. 

(a)  Responsible  for  receipts. 
(6)  Responsible  for  stock. 

3.  Moral. 

(a)  Make  store  connecting  link  between  corporation  and  customer. 

4.  Managerial. 

(a)  Store  neat  and  clean. 
(6)  Stock  properly  arranged  and  tagged, 
(c)    Service  to  customers. 
Authority  governed  by 

1.  Pohcy  of  company. 

2.  Size  of  chain  and  degree  of  personal  supervision. 

3.  Size  of  store. 

(a)  Large  store  manager's  considerable  authority. 

1.  Refund  money. 

2.  Cut  prices. 

3.  Make  purchases. 

4.  Employ  help. 

5.  Arrange  stock. 

6.  Etc. 

(6)  Small  store's  small  authority. 
1.  Close  supervision. 

232 


CHAPTER  XV 
THE  STORE  MANAGER 

No  man  succeeds  in  anything  he  does  unless  he  is  interested 
in  it.  Few  men  are  satisfied  unless  they  can  increase  their  mone- 
tary compensation  as  a  result  of  their  own  efforts.  The  ordinary 
man  prefers  to  work  for  himself  rather  than  to  work  for  others. 
There  is  much  disagreement  among  chain  organizations  as  to  just 
what  the  final  secret  of  success  in  chain  management  is,  but 
the  consensus  of  opinion  on  the  greatest  weakness  of  the  chain 
is  unanimous.  The  chain  is  strong  in  proportion  as  it  holds  the 
undivided  and  whole-hearted  allegiance  of  its  store  managers. 
If  a  branch  store  is  to  compete  successfully  with  independent 
stores,  the  man  in  charge  of  that  branch  must  feel  he  is  able 
to  earn  as  large  an  amount  of  money  as  the  owner  of  the  inde- 
pendent store  next  door. 

All  chains  recognize  that  some  inducement  must  be  held  out 
to  the  store  manager.  He  must  be  given  a  bonus,  a  commission 
on  sales,  or  encouraged  by  some  other  expedient  into  devoting 
himself  completely  to  the  interests  of  the  chain.  In  return  for  his 
services  as  evidenced  by  increased  sales,  more  rapid  turnover, 
etc.,  the  manager  receives  a  larger  return,  a  more  profitable 
store  to  manage,  perhaps  advancement  into  the  central 
organization.  In  other  words,  the  chain  organization  must 
keep  the  road  to  promotion  wide  open.  Any  stoppage 
along  the  route  means  stagnation.  The  progress  of  the  store 
manager  is  unmistakably  evident  to  the  executive  at  headquar- 
ters by  the  figures  as  to  that  store. 

Choosing  the  Manager. — What  kind  of  a  man  is  needed  by  the 
chain  in  order  to  train  him  into  a  capable  and  efficient  store 
manager?  Mr.  Woolworth  said:  "I  prefer  the  boy  from  the 
farm  to  the  college  man.  The  college  man  won't  start  at  the 
bottom  and  learn  the  business."  This  may  be  a  prejudiced 
view,  but  it  represents  the  statement  of  opinion  of  one  of  the 
great  chain  store  pioneers.     And  every  man  in  the  Woolworth 

233 


234  CHAIN  STORES 

organization  must  at  some  time  have  served  behind  the  counter. 
For  every  position  there  are  two  understudies,  and  each  place  is 
won  by  merit.  It  is  a  rule  never  to  go  outside  the  organization 
for  a  manager  or  higher  position. 

When  the  Penney  organization  wants  men,  the  following 
advertisement  appears  in  local  papers: 

"  Men  wanted.  Well  established  mercantile  concern,  operating  313  retail 
stores,  offers: 

1.  Long  and  continuous  hours  of  work. 

2.  The  work  itself,  hard,  ceaseless,  trying,  testing. 

3.  The  work  drive  unrelenting,  day  in  and  day  out. 

4.  And  for  it,  a  small  livjag  salary,  perhaps  less  than  you  are  getting 
now." 

Mr.  Penney  says : 

"  I  have  generally  found  the  young  man  coming  from  the  small  towns 
of  the  Middle  West  making  the  best  all-round  men.  They  have  not  been 
spoiled  by  big  cities  and  they  know  how  to  live  within  their  income. 

"The  men  in  our  organization  must  not  drink,  gamble,  or  smoke 
cigarettes.     We  like  to  get  coUege  men. 

"A  man  is  started  as  a  salesman  behind  the  counter.  We  learn  to 
know  him  and  he  learns  to  know  us.  If  he  makes  good,  time  will  come 
when  he  is  put  in  charge  of  a  store,  usually  an  offshoot  of  the  one  where 
he  has  been  working.  The  next  time  he  changes,  he  gets  an  interest 
in  his  first  store.  If  he  doesn't  have  money,  we  lend  it  to  him.  If  he  is 
a  big  success  in  that  store,  he  can  then  start  other  stores." 

These  statements  are  enough  to  show  what  two  authorities 
think.  President  Wattley  of  the  National  Drug  Stores  believes 
in  young  men,  constructively  trained,  carefully  watched,  properly 
placed,  and  backed  by  the  corporation.  He  himself  had  formerly 
picked  the  managers  for  the  Liggett  stores.  His  requirements 
for  a  manager  are  that  he  should  have  a  pleasant  personality, 
ready  courtesy,  and  be  strong  in  discipline — a  man  who  can 
enforce  his  discipline  with  a  smile,  is,  according  to  him,  the  one 
who  makes  the  100  per  cent,  success. 

Briefly^  chains  acquire  new  employees — 

1.  By  offering  inducements  to  men  already  estabUshed  in  other  chains, 

2.  By  taking  in  men  who  have  already  had  retail  experience  in  other 
lines, 

3.  By  training  a  force  of  their  own. 


THE  STORE  MANAGER  235 

By  such  means  the  chains  have,  as  a  general  rule,  succeeded 
in  acquiring  a  sales  and  managerial  force  far  above  the  ordinary 
retail  average. 

The  third  method  is  the  one  usually  employed  by  the  large 
chains  and  as  far  as  possible  by  the  smaller  organizations.  If 
a  chain  expands  faster  than  the  personnel  can  be  adequately 
trained,  then  men  must  be  sought  outside,  but  it  may  prove  as 
dangerous  to  expand  without  adequate  and  capable  personnel  as 
it  is  to  expand  without  sufficient  financial  reserves. 

The  first  method  is  sometimes  used,  but  the  user  runs  great 
risk  of  incurring  the  ill-will  of  the  chain  from  which  the  men 
have  been  taken. 

The  smaller  chain  can  maintain  personal  contact  with  the 
store  managers,  while  the  larger  chains  must  rely  on  methods. 
Therefore,  the  large  chain  must  exercise  double  care  in  putting 
its  trust  in  a  man  who  controls  stock  amounting  to  thousands  of 
dollars. 

The  Duties  of  a  Store  Manager. — The  duties  of  a  branch 
manager  vary  in  accordance  with  the  size  of  the  chain,  the  policy 
of  the  organization  in  regard  to  delegating  authority,  and  the 
individual  capability  of  the  man  in  charge  of  the  store.  A  good 
manager  will  always  find  things  to  do  outside  the  strict  inter- 
pretation of  his  duties  as  outlined  by  the  central  management. 

A  store  manager  will,  in  all  cases,  have  to  make  daily  reports, 
he  will  have  to  see  that  cash  taken  in  is  banked,  he  will  be  re- 
quired to  keep  the  appearance  of  his  store  as  neat,  clean,  and 
attractive  as  possible.  He  may  have  the  responsibility  of  hiring 
the  clerks.     He  may  or  may  not  settle  for  overhead  expenses. 

The  efficient  store  manager  knows  that,  in  the  last  analysis, 
his  success  in  that  position  which  he  holds  lies  in  the  hands  of 
the  purchasing  public,  and  that  the  way  to  attract  the  public 
is  to  give  them  service.  A  chain  store,  of  course,  can  give  service 
in  many  other  ways  other  than  by  delivering  goods  and  extending 
credit.  A  low  price  is  a  form  of  service,  a  well-arranged  and 
complete  stock  is  another  form  of  service,  and  courtesy  to  the 
customer  is  still  another  form.  And  at  this  point  we  might  men- 
tion the  effect  of  the  manager's  personality  as  a  form  of  service. 

Authority. — The  direct  control  which  the  manager  has  over 
his  store  is  delegated  to  him  by  the  central  organization  as  its 


236  CHAIN  STORES 

agent.     Thus  the  first  great  point  in  delimiting  the  authority  of 
the  branch  manager  is  the  poUcy  of  the  company  in  this  respect. 

1.  Company  policy.  Some  chain  systems  regard  a  store 
manager  as  merely  a  clerk  over  whom  supervision  must  be 
exercised  by  other  means  than  direct  personal  control.  He  may 
not  be  allowed  to  hire  clerks,  to  make  any  purchases,  or  to  with- 
draw any  money  from  receipts  for  contingent  expenses.  There 
is  no  universality  or  standard  practice  used  in  regard  to  branch 
managers. 

2.  The  size  of  the  chain.  Generally  speaking,  the  smaller 
the  chain,  the  smaller  the  responsibility  of  the  store  manager. 
Thus  if  the  chain  system  were  confined  to  a  single  town,  the 
manager  would  probably  not  be  allowed  to  make  any  purchases. 
All  goods  would  come  to  him  direct  from  the  main  warehouse.  If 
a  package  were  broken,  he  would  have  to  keep  the  actual  package 
for  the  inspection  of  the  management  or  else  be  charged  with 
the  retail  price  of  this  package.  He  would  employ  no  help,  as 
the  central  organization  would  do  this.  However,  this  is  not 
confined  to  small  chains,  since  the  United  Cigar  Stores  train 
salesmen  themselves  and  then  distribute  them  to  member  stores. 

Where  a  number  of  branch  stores  are  close  together  under 
the  constant  supervision  of  a  district  manager,  their  authority 
will  be  less  than  where  the  units  are  broadly  scattered.  In  the 
latter  case,  the  manager  may  be  almost  autonomous. 

3.  The  type  of  product.  The  manager  of  a  store  containing 
large  floor  space  and  varied  stock  necessarily  must  have  broader 
authority.  He  has  more  men  and  women  working  under  him. 
His  volume  of  sales  is  larger,  his  stock  of  goods  is  more  valuable. 
He  receives  a  larger  salary.  For  example  the  manager  of  a 
branch  dry  goods  store  may  have  to  have  a  large  amount  of 
authority.  He  may  be  authorized  to  refund  money,  make 
exchanges,  cut  prices  to  meet  competition,  increase  advertising 
appropriations,  employ  extra  sales  help,  sell  loss  leaders,  divide 
departments  to  suit  himself,  employ  and  discharge  help,  raise 
and  lower  wages,  purchase  goods,  veto  price  recommendations 
made  by  the  home  office,  and  select  the  goods  he  wishes  to  sell 
from  samples  submitted  by  the  purchasing  department.  In  this 
case,  it  is  the  manager  who  must  meet  the  competition  by  adapt- 
ing his  policies  to  meet  local  conditions. 


THE  STORE  MANAGER  237 

In  a  grocery  store,  we  have  the  other  extreme.  There  are 
often  many  of  these  stores  belonging  to  one  organization  in  a 
community.  The  store  manager  has  no  authority  as  to  what 
he  shall  sell  or  the  price  at  which  he  shall  sell.  The  manager  is 
there  to  see  that  instructions  from  the  warehouse  or  buyer  as 
to  prices  and  goods  to  be  sold  are  carried  out.  The  goods  from 
the  warehouse  are  invoiced  to  him  at  retail  prices  and  he  must 
sell  his  quota. 

The  manager  of  a  shoe  store  carrying  a  branded,  advertised 
line  might  be  required  to  conduct  his  store  according  to  strict 
rules  laid  down  by  the  home  office  as  to  prices  and  advertising, 
but  he  has  latitude  in  his  choice  of  styles  to  sell  and  his  method 
of  selling  them. 

As  to  the  authority  of  a  manager  in  a  five-  and  ten-cent  store, 
it  is  said  that  the  manager  of  each  local  store  is  responsible  to 
his  district  office,  which  in  turn  is  under  the  central  office,  and 
from  that  office  originate  all  important  orders.  The  manager 
has  little  to  say  regarding  the  policies  under  which  the  store  to 
which  he  is  sent  is  to  operate.  He  is  transferred  by  the  central 
office  from  one  store  to  another,  from  one  city  to  another,  as  his 
supervisor  thinks  best.  As  one  manager  put  it:  "If  it  isn't  a 
promotion  it's  a  demotion,  and  it's  not  up  to  you  to  fuss  about 
it." 

From  what  has  been  said,  it  is  easy  to  see  that  no  set  rules 
can  be  laid  down  for  limiting  or  extending  the  authority  of  the 
branch  manager.  In  each  case,  it  will  be  dictated  by  the  policy 
of  the  controlling  body  as  modified  by  circumstances. 

Moral  Responsibilities. — The  majority  of  chain  systems  have 
been  able  to  create  an  esprit  de  corps  which  goes  a  long  way 
towards  offsetting  the  disadvantages  experienced  in  finding  and 
training  branch  managers.  Such  a  spirit  must  exist  if  the  chain 
is  to  expand  and  be  successful.  This  feeling  is  obtained  partly, 
of  course,  by  arranging  a  scale  of  remuneration  to  fit  the  ambition 
of  the  type  of  man  desired,  but  money  alone  would  never  be 
sufficient.  There  must  be  this  sense  of  moral  responsibility 
which  the  branch  manager  has  for  his  store. 

The  manager  becomes  a  part  of  the  system,  on  the  one  hand, 
and  a  part  of  the  community  in  which  the  store  is  located,  on  the 
other.     He  is  the  connecting  link  between  the  impersonal  chain 


238  CHAIN  STORES 

unci  the  customers.  He  wishes  the  chain  to  appear  well  in  the 
eyes  of  the  public,  as  judged  through  his  store.  Therefore,  he 
keeps  it  neat  and  clean,  and  forgets  to  note  the  overtime  he  spends 
in  making  it  attractive.  He  has  a  feeling  of  pride  in  the  store 
and  something  very  much  akin  to  a  feeling  of  ownership.  The 
chains  which  make  the  yoke  of  the  necessary  accounting  routine 
weigh  as  lightly  as  possible,  and  place  the  largest  premium  on 
the  individuality  of  the  store  manager,  have  little  difficulty  in 
securing  the  loyalty  of  this  branch  of  the  personnel.  The 
man  who  is  working  for  himself  pays  little  heed  to  hours  or 
wages. 

Financial  Responsibilities. — The  manager  is  not  only  morally 
responsible  for  his  store,  but  he  is  financially  responsible.  He 
must  look  out  for  the  stock  and  for  the  money  taken  in  from 
sales.  This  responsibility  differs  in  actual  practice.  In  some 
chains  no  one  but  the  manager  is  permitted  to  open  the  cash 
drawer  or  make  change.  A  clerk  may  take  money  from  a  cus- 
tomer, but  he  has  to  call  the  manager  to  put  it  in  the  cash  drawer 
or  make  change.  The  rule  may  seem  strict  in  this  case,  but  it 
places  all  responsibility  fairly  and  squarely  upon  the  shoulders 
of  the  store  manager. 

Usually  a  store  manager  should  be  required  to  put  up  a  cash 
bond,  and  any  shrinkage  in  stock  w^hich  is  unaccounted  for  is 
likely  to  be  deducted  from  this  bond.  Allowance  is  made,  of 
course,  for  shrinkages  which  are  unavoidable  in  any  chain. 
Bonding  should  be  required  in  chains  where  the  responsibility 
of  the  manager  financially  can  be  adequately  protected  in  this 
way.  A  manager  with  a  great  deal  of  authority  naturally  cannot 
measure  his  honesty  by  any  such  method,  since  his  position  alone 
is  in  the  nature  of  a  bond.  But  for  the  manager  of  a  small 
branch  store  a  bond  is  at  once  a  gauge  of  his  honesty  and  a  guard 
against  temptation. 

Ordinarily  cash  receipts  from  the  daily  sales  in  the  braijch 
store  are  put  in  the  local  bank.  In  some  local  chains  cash  is 
collected  daily  by  an  employee  of  the  chain.  In  the  Penney 
stores  receipts  are  banked,  subject  to  New  York  draft,  three 
times  a  week.  In  some  chains,  the  manager  may  be  allowed  to 
deduct  sums  necessary  to  pay  current  expenses,  connected  with 
the   operation   of  the   store.     In   other   chains,   a   "contingent 


THE  STORE  MANAGER  239 

fund"  is  provided  for  means  of  paying  such  bills  and  providing 
change.  Every  expenditure,  however,  must  be  vouchered,  and 
each  week  the  manager  must  make  a  report  of  the  condition  of 
the  fund  and  send  in  his  vouchers  for  verification.  This  permits 
depositing  the  results  of  each  day's  business  in  total  and  an  audit 
of  vouchers  plus  an  examination  of  cash  in  the  "contingent  fund " 
quickly  establishes  actual  expenditures  of  the  store. 

As  a  general  principle,  all  money  taken  in  by  branch  stores 
is  concentrated  at  headquarters.     This  is  done  for  two  reasons: 

1.  Purchasing  functions  are  centralized  in  one  place  and  all 
other  major  expenses,  salaries,  bonuses,  etc.,  also  are  paid  direct 
from  the  central  organization. 

2.  It  is  easier  to  teach  the  average  man  how  to  sell  goods  than 
it  is  to  teach  him  finance.  The  less  he  has  to  do  with  financial 
responsibilities,  other  than  those  absolutely  necessary,  the  better 
he  performs  his  other  duties. 

Knowledge  of  Stock. — Every  properly  trained  store  manager 
knows  his  stock  thoroughly.  This  is  a  fundamental  requisite 
of  salesmanship  and  even  although  in  the  majority  of  cases  goods 
in  chain  stores  sell  themselves  without  the  aid  or  effort  of  the 
clerk  in  expressing  their  advantages,  a  knowledge  of  stock  is 
necessary.  Stock  must  be  turned  as  rapidly  as  possible.  The 
only  way  to  secure  rapid  turnover  is  to  specialize  on  those  goods 
which  have  shown  themselves  to  be  best  sellers. 

But  in  all  cases  there  will  be  some  goods  that  move  faster 
than  others.  The  manager  who  can  keep  the  slow  stock  turning 
over  is  the  most  valuable.  Thorough  knowledge  of  stock  is 
required  before  the  manager  can  order  properly.  He  must  be 
able  to  tell  what  will  sell  in  his  locality.  Putting  aside  all  ques- 
tions of  local  preferences  and  seasonal  preferences  which  are 
treated  elsewhere,  it  is  the  duty  of  the  manager  to  serve  as  the 
local  interpreter  between  the  public  and  the  chain's  purchasing 
agent.  In  the  majority  of  cases  the  chain  manager  is  allowed  to 
pick  out  quantities  of  any  article  on  the  list  sent  out  by  the  ware- 
house. The  manager  is  supposed  to  be  able  to  judge  the  wants  of 
his  customers  and  about  how  much  they  will  buy. 

The  problem  of  knowing  stock  varies,  of  course,  immensely 
with  the  type  of  goods  sold.  The  problem  of  a  drug  store 
manager  is  far  more  complicated  than  that  of  the  manager  of  a 


240  CHAIN  STORES 

grocery  chain,  or  than  in  the  case  of  a  hosiery  store  or  shoe  store 
the  sales  of  which  are  Hmited  to  one  product. 

Knowledge  of  stock  requires  a  proper  care  for  details.  Price 
tags  should  be  properly  fastened  in  place  and  changed  promptly. 
It  is  bad  policy  to  have  a  group  of  articles  worth  thirty  cents 
marked  ten  cents  because  they  happen  to  be  occupying  space 
formerly  covered  by  a  ten-cent  article. 

The  manager  must  see  that  the  appearance  of  the  store  is 
maintained  at  the  proper  standard.  He  must  not  only  notify 
the  central  office  of  articles  running  low,  but  he  must  see  that 
these  articles  are  properly  arranged  when  they  arrive. 

The  Manager's  Reports.^ — -Daily  reports  should  be  made  in  all 
chains.  The  details  of  the  report  system,  however,  vary  with 
the  size  of  the  chain  and  the  type  of  product  sold.  The  larger 
the  chain,  the  more  difficult  it  is  to  maintain  personal  contact 
with  the  branch  stores.  Hence  it  follows  that  the  management 
must  rely  on  statistical  reports  for  its  knowledge  of  the  actual 
condition  of  a  store.  In  small  chains  of  five-  and  ten-cent  stores, 
centralized  within  a  comparatively  small  radius,  where  the  owner 
is  in  almost  daily  touch  with  each  store  and  knows  the  managers 
intimately,  reports  are  valuable  as  checks  on  his  judgment  rather 
than  as  courts  of  last  resort.  It  is  almost  as  easy  to  over- 
emphasize the  value  of  daily  reports  as  it  is  to  under-emphasize 
them. 

Suppose,  in  the  first  instance,  we  take  the  daily  reports  required 
from  branch  managers  of  a  large  drug  chain. 

1.  There  is  a  daily  sales  report,  showing  all  sales,  cash  and 
charges,  and  all  receipts  from  sources  other  than  cash  sales.  The 
total  as  shown  by  the  report  is  deposited  in  the  bank  and  the 
main  office  receives  confirmation  of  this  deposit  from  the  bank 
direct. 

2.  Managers  are  required  to  make  copies  of  all  orders  for 
merchandise.  One  of  these  is  sent  to  the  main  office  and  supplies 
a  constant  record  of  purchases  which  is  used  as  a  check  for 
buying. 

3.  Statement  of  condition  of  "contingent  fund"  is  sent  in 
daily,  together  with  vouchers  of  bills  paid. 

4.  All  invoices  for  goods  purchased  are  sent  to  the  main  office 
and  immediately  on  receipt  are  charged  against  the  purchase 


TEE  STORE  MANAGER  241 

account  of  the  store.  In  order  that  they  may  be  promptly 
audited  and  paid,  it  is  necessary  that  receipt  of  the  goods  be 
established.  For  this  purpose  the  quantities  are  omitted  from 
one  of  the  copies  of  the  original  order.  When  the  goods  reach 
the  store,  they  are  checked  off  on  this  sheet  and  quantities  filled 
in.  If  there  is  breakage  or  other  fault,  mention  is  made  on  this 
sheet.  It  is  dated  as  of  the  date  of  receipt  of  goods  signed  by 
and  sent  in  daily  by  the  manager.  When  this  sheet  is  received 
in  the  main  office,  it  is  matched  up  with  and  attached  to  the 
invoice. 

Inventory  and  turnover  will  be  discussed  in  a  separate 
chapter.  Full  and  complete  account  of  a  model  system  of  reports 
for  a  grocery  chain  will  be  found  in  the  chapter  "Controlling 
Retail  Outlets." 

Service  to  the  Community. — The  store  manager,  as  has  been 
said,  is  responsible  to  the  organization  for  the  reputation  of  the 
member  store  in  the  community.  His  position  is  much  harder 
than  that  of  the  ordinary  independent  retailer  who  knows  local 
conditions,  and  whose  hold  on  the  public  has  been  built  up 
through  long  and  intimate  service.  The  manager  of  a  chain 
store  is  at  once  a  link  in  an  impersonal  organization  and  a  personal 
representative. 

Some  chains  allow  their  managers  to  give  special  services 
at  their  own  expense.  Other  chains  make  the  manager  conform 
to  strict  rule.  The  question  of  deliveries,  for  example,  has  come 
to  be  regarded  in  the  light  of  a  test  of  chain  store  efficiency. 
Managers  in  some  chains  are  restricted  so  that  they  cannot 
make  deliveries,  even  if  the  customer  pays  a  price.  The 
justification  of  this  policy  lies  in  the  successful  application. 
But  there  is  and  always  will  be  a  certain  class  of  customer 
which  wishes  and  demands  service.  As  competition  between 
chains  becomes  closerj  the  question  of  increased  service  to 
promote  trade  is  sure  to  come  up.  For  example,  one  grocery 
chain  of  fairly  large  size  has  resumed  delivery  service,  while  still 
selling  goods  on  a  par  with  competing  chains.  Deliveries, 
needless  to  say,  are  limited  to  a  very  restricted  district. 

Another  disadvantage  under  which  the  chain  store  labors 
is  that  much  of  its  trade,  owing  to  the  elimination  of  credits  and 
deliveries,  is  transient.     Yet,  on  the  other  hand,  certain  managers 

16 


242  CHAIN  STORES 

have  been  able  to  obtain  a  regular  class  of  customers,  notably  in 
the  grocery  chains. 

This  is  where  the  personality  of  the  manager  shows  its  strongest 
results — in  the  manner  in  which  service  is  rendered  to  the  public. 

Conclusions. — One  most  important  point  has  been  already 
treated  elsewhere,  namely,  the  method  of  paying  store  managers. 
Although  properly  belonging  here,  it  was  thought  better  to 
put  the  discussion  of  the  principles  involved  Under  the  chapter 
on  organization,  in  which  the  store  manager  plays  a  leading 
part. 

This  chapter  had  been  confined,  as  far  as  possible,  to  the 
store  manager  himself,  and  his  duties  towards  the  organization, 
and  to  the  qualities  which  render  him  valuable  to  that  organi- 
zation. But  considered  from  any  point  of  view,  the  store  man- 
ager is  a  vital  link  in  the  chain  store  problem.  It  is  necessary  to 
give  him  the  same  initiative,  incentive,  and  interest  in  the  busi- 
ness that  is  possessed  by  the  independent  owner  of  a  retail 
store. 


CHAPTER  XVI 
WAREHOUSING  AND  PURCHASING  RECORDS 

Outline 

Proper  stock  keeping. 

1.  Form. 

(a)  5"  X  8"  stock  card. 

(b)  Kept  in  vertical  file. 

(c)  Index  by  commodities. 

(d)  Separate  card  for  each  item. 

2.  Statistical  data  furnished  buyer. 

(a)  When  to  buy. 

(b)  How  much  to  buy. 

(c)  From  whom  to  buy. 

(d)  Approximate  time  of  delivery. 
Counting  stock. 

1.  Schedule  for  counting. 

(a)  Buyer  or  warehouse  superintendent  responsible. 

2.  Routine  methods. 
Cost  records. 

1.  Source  of  data. 

2.  Routine  of  recording  data. 
Price  changes. 

1.  Mark-up  and  mark-down  voucher  systems, 
(a)  Book  keeping  entries  necessary. 
Salvage. 

1.  Salvage  voucher  system. 

(a)  Routine  practice. 

2.  Necessity  of  reporting  salvage  immediately. 
Processes  involved  in  typical  purchase. 

1.  Buyer  obtains  information  from  stock  cards  as  to 

(a)  Time  to  buy. 

(b)  Quantity  to  buy. 

(c)  From  whom  to  buy. 

2.  Duplicates  of  purchase  order. 

3.  Figuring  and  handling  of  invoice  covering  a  specific  purchase. 

(a)  Buyer's  records. 

(6)   Temporary  invoice  file  containing 

1.  Invoices  not  paid  and  not  received. 

2.  Invoices  not  paid  but  received. 

243 


244  CHAIN  STORES 

3.  Invoices  paid  but  not  received. 

4.  Invoices  pending  allowances  or  disputes. 

5.  Invoices  pending  claims  against  carriers. 

(c)  Receiving  record. 

(d)  Re-checking  and  figuring  unit  cost. 

(e)  Entries  on  books  of  account  and  final  payment. 
(/)    Permanent  invoice  files. 


CHAPTER  XVI 
WAREHOUSING  AND  PURCHASING  RECORDS 

By  John  S.  Fueek 

The  warehousing  question  and  the  purchasing  question  are 
very  closely  allied.  It  is  a  constant  process  of  check  and  balance. 
Stock  in  the  warehouse  must  be  kept  at  normal  and  the  pur- 
chasing department  must  be  informed  whenever  there  is  a 
shortage  or  threatened  shortage  in  supply.  As  has  been  shown 
in  the  previous  discussion  of  the  principles  involved  in  proper 
warehousing  and  purchasing,  this  problem  is  one  of  the  most 
important  in  chain  store  practice.  It  remains  in  this  chapter 
to  throw  some  light  on  the  practical  working-out  of  a  typical 
warehousing  and  purchasing  problem.  As  grocery  chains  are 
by  far  the  most  numerous,  one  of  them  has  been  used  to  illus- 
trate typical  accounting  method. 

Warehousing  and  purchasing  come  down,  in  the  final  analysis, 
to  careful  records  of  inventories,  receipts,  and  shipments  of 
goods  needed  to  supply  the  retail  outlets.  Stock-keeping  and 
stock  records  should  aim  to  give  the  buyer  the  following  infor- 
mation : 

1.  When  to  buy. 

2.  How  much  to  buy. 

3.  From  whom  to  buy. 

4.  The  rate  of  stock  turn. 

5.  Seasonal  variations. 

6.  Transportation  routes  and  time  between  order  and  delivery. 

All  these  questions  are  likely  to  come  up  at  any  time  and 
the  ability  to  answer  them  correctly,  quickly,  and  specifically 
is  highly  important  from  a  financial  point  of  view.  Warehouse 
accounting  is  a  prerequisite  to  intelligent  buying  and  the  conduct 
of  the  business  as  a  whole.  It  gives  the  cash  value  of  the  goods 
on  hand  and  indicates  clearly  whether  the  business  can  stand  the 

245 


246 


CHAIN  STORES 


strain  of  further  purchases.     It  also  forms  a  guide  to  the  amount 
of  insurance  necessary  to  carry. 

Stock  Keeping  and  Stock  Records. — The  question  which  im- 


Sa/)T/n£y(yO  ^(yiru 

Size                CP^-^ 

~SuA/m^&^i'<i^yi^ 

'  pkd.     D^cUr^. 

Mfe.     (Irn^ihne^'So' 

Unit 

Page  J/        C/ 
standing  Order 

Maximum  QJ)^  C^JUUUL- 
Minimum         .^i  C-OA^l- 

Date 

On  Hand 

Ordered 

Receipts 

Invoiced 
by 

1-J-SLl 

b^dn 

mJ 

ISO. 

9-/6'SJ 

n 

^t. 

f-X9-2-! 

/^ 

lO-im 

IG 

lU-M-M 

ly 

tf^fc. 

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I'i 

//-M-XI 

10 

d-A 

ia,9-su 

y 

\%Vji 

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/jbmi 

^ 

h^-^ 

3 

mx 

IQC. 

d:l. 

I'lkM. 

II 

2-l-JSi 

S 

2m 

lOo. 

Fig.  30. — Stock  record  card. 


mediately  arises  here  is  how  to  combine,  in  the  most  convenient 
form,  both  completeness  and  simplicity.  One  form,  which  may 
be  recommended,  employs  a  5  X  8  in.  vertical  card  (see  Fig. 
30)  with  three  main  columns  "on  hand,"  "ordered,"  and  "re- 


PURCHASING  RECORDS 


247 


ceived."  A  separate  card  is  made  out  for  every  article  carried  in 
stock.  At  the  top,  this  card  bears  the  name  and  size  of  the 
article  and  the  name  of  its  source,  whether  manufacturer,  grower, 
or  broker.  Then  it  gives  the  maximum  quantity  of  stock  it 
is  desirable  to  keep  on  hand  of  this  particular  article,  and  also 


Fig.  31. — Vertical  stock  card  file. 


the  minimum  under  which  the  amount  of  the  article  in  stock 
must  not  be  allowed  to  drop. 

All  articles  leaving  the  warehouse  are  entered  on  these  cards 
which  serve  to  give  the  buyer  information  as  to  when  and  how 
much  to  buy.  With  some  routine  buying  of  steadily  moving 
staple   items,  a  standing  weekly  or  monthly  order  will  serve 


248 


CHAIN  STORES 


and,  in  that  event,  should  be  entered  on  the  card.  By  having 
the  man  counting  the  stock  and  entering  the  quantity  place  his 
initials  in  the  last  column  on  the  card,  responsibility  for  a  proper 
count  is  fixed. 

These  cards  are  to  be  kept  in  vertical  files  and  indexed  by 
groups,  preferably  in  the  same  order  as  in  the  price  list.  All 
books  or  files  containing  data  about  the  merchandise  should 
be  arranged  in  exactly  the  same  order,  so  that  consulting  the 
various  files  or  books  will  cause  the  least  amount  of  effort.  After 
a  clerk  becomes  accustomed  to  the  order  of  arrangement,  he 
turns  to  the  item  almost  automatically. 

Figure  31  shows  the  arrangement  of  the  cards  in  the  vertical 
file.     The  headings  on  the  cards,  of  course,  can  be  varied  at  will. 

Counting  Stock. — Readily  moving  items  should  be  counted 
weekly  for  stock  on  hand.  Those  with  a  lower  rate  of  turnover 
should  be  counted  bi-weekly,  and  others  only  monthly.  A 
schedule  can  be  constructed  putting  into  certain  groups  for  stock 
taking  all  articles  carried.  For  example,  if  business  at  the  ware- 
house is  usually  quieter  on  Tuesday,  Wednesday  and  Saturday, 
a  schedule  can  be  worked  out  with  this  in  view  as  follows : 


Bi-weekly  and  monthly  schedules  taken  on  Tuesdays. 

Groups,  V,  VI,  VII,  VIII,  IX,  X,  XI,  XII. 
Weekly  schedules  on  Wednesdays  and  Saturdays. 

Groups  I,  II,  III,  IV. 
The  contents  of  the  groups  would  be  made  up  as  follows : 


Weekly 

Bl-WEEKLT 

Monthly 

I. 

Bacon,  pork,  lard 

V. 

Baking  powder 

IX. 

Ammonia 

Biscuits 

Canned  meats 

Beverages 

Butter 

Canned  soup 

Canned  fish 

Cereals 

Canned     corn,     tomatoes. 

X. 

Canned  fruits 

Cheese 

peas 

Canned  pork  and  beans 

Cocoa  and  chocolate 

Crisco  and  oils 

Canned   vegetables. 

Coffee 

VI. 

Dried  beans  and  peas 

misc. 

II. 

Eggs 

Dried  fruits 

XI. 

Cocoanut 

Flour,  meal,  etc. 

Extracts 

Disinfectants         and 

Milk 

Fish,  salt 

drugs 

III. 

Soaps,  laundry 

Gelatines 

Glassware 

Soaps,  powder 

VII. 

Honeys,  jama,  jellies 

Paper 

Sugar 

Macaroni 

Polish 

Teas 

Relishes,  pickles,  etc. 

XII. 

Soda  and  lime 

IV. 

Yeast 

VIII. 

Soaps,  toilet 

Vinegar 

Matches 

Spices 

Woodenware  and  sup- 

Salt 

Molasses,  syrups 

plies 

Starch 

Tapioca 

Vegetables  in  season. 

PURCHASING  RECORDS 


249 


Each  chain  would  find  it  necessary  to  make  a  great  many 
changes  in  the  details  of  the  arrangement  outlined  above  but 
the  fundamental  idea  can  be  adopted  with  little  difficulty.  On 
the  basis  as  described  here,  the  following  control  schedule  can 
be  made  up  for  the  month. 


First  week 

Second  week 

Third  week 

Fourth  week 

Tues. 

Wed. 

Sat. 

Tues. 

Wed. 

Sat. 

Tues. 

Wed. 

Sat. 

Tues. 

Wed. 

Sat. 

V 

I 

Ill 

VII 

I 

Ill 

V 

I 

Ill 

VII 

I 

Ill 

VI 

II 

IV 
IX 

VIII 

II 

IV 
X 

VI 

II 

IV 
XI 

VIII 

II 

IV 

XII 

Under  ordinary  circumstances,  the  buyer  would  be  responsible 
for  having  this  schedule  carried  out.  He  takes  the  cards  out  of 
the  file  on  the  proper  date  and  gives  them  to  the  stock  man.  The 
stock  man,  in  turn,  makes  a  physical  count  of  goods  on  hand  as 
indicated  by  the  card  headings  and  enters  the  result  of  his  count. 
Then  he  returns  the  cards  to  the  buyer  who  looks  to  see  whether 
he  needs  to  make  any  purchases. 

If  the  buyer  purchases  anything  he  records  the  date  and  the 
quantity  purchased  in  the  order  column,  see  Fig.  30.  When  the 
goods  arrive  the  clerk  who  is  responsible  for  receiving  goods  enters 
the  date  of  receipt  and  the  quantity.  He  may  enter  receipts 
first  on  a  book  and  then  enter  the  receipts  later  on  the  cards. 

Methods  of  Accounting  to  Arrive  at  Cost. — In  order  to  give  the 
management  the  information  it  needs  to  carry  on  the  business 
intelligently,  it  is  necessary  not  only  to  build  up  a  stock  system 
that  will  show  the  turnover  of  each  item  carried,  the  time  to  buy, 
and  the  amount  to  pay,  but  also,  by  means  of  a  system  of  cost 
keeping,  to  obtain  an  accurate  record  in  figures  from  the  account- 
ing department  of  exactly  where  the  business  stands  and  just 
what  is  the  cash  value  of  inventories.  This  information  should 
be  current  and,  to  be  valuable,  must  be  in  strict  agreement  with 
the  financial  books.  It  should  be  available  not  only  on  the  dates 
when  the  physical  inventories  at  the  warehouse  are  figured,  but 
at  all  times.  These  stated  physical  inventories  should  then 
become  only  a  check  on  the  book  values  by  the  actual  count  of 
stock.     If  the  system  is  not  defective,  and  if  the  discrepancy 


250 


CHAIN  STORES 


between  cash  value  of  book  inventory  and  cash  value  of  physical 
inventory  is  slight,  it  is  an  indication  that  the  records  are  working 
accurately.  But  if  the  discrepancy  is  great,  there  is  a  possibiUty 
of  theft,  which  should  be  investigated.  A  large  discrepancy 
usually  is  attributable  either  to  theft,  a  poor  system,  or  the  care- 
less handling  of  a  good  system. 

The  method  here  recommended  is  a  simple  one  that  has  proved 
its  value  in  cost-keeping  of  wholesale  groceries  and  chain 
warehouses. 

The  foundation  of  ail  subsequent  accounts  for  merchandise 
is  based  on  the  correct  initial  figuring  and  recording  of  the  cost 
of  merchandise  purchased:  that  is,  the  entries  for  merchandise 


FIRU 

liUAN 
TITV 

BRAND 

on     ^ 

PRICE 

MDSE. 
DISC. 

FRT. 

CSfl 
DI!i( 

FIRST 
COST 

CHANGE 
COST 

RE- 
TAIL 

* 

Fig.  32. — Page  from  cost  record  book. 


on  the  merchandise  account  must  be  at  the  correct  cost  figure. 
For  simplicity  of  illustration,  various  classifications  of  merchan- 
dise are  not  separated  into  separate  accounts. 

A  cost  record  book  is  kept  by  the  buyer  or  buyers.  This 
book  is  indexed  in  exactly  the  same  way  as  the  price  lists 
and  card  file.  For  a  sample  of  convenient  headings  see  Fig. 
32.  These  include  all  the  necessary  information  for  those  who 
desire  it. 

When  the  goods  are  received,  the  buyer  figures  their  unit 
cost  (taking  net  invoice  price,  not  including  cash  discount, 
freight,  cartage,  and  the  like)  and  enters  such  data  in  the  cost 
record  book.  At  the  same  time  he  enters  also  the  selling  price 
in  the  book.  In  this  way,  the  cost  record  book  and  records 
hereafter  used  for  figuring  cost  of  merchandise  items  in  detail  will 
give  a  unit  cost  that  will  correspond  in  proper  ratio  to  the  total 


PURCHASING  RECORDS 


251 


cost  as  entered  in  the  merchandise  account  by  the  bookkeeper. 
For  example,  the  following  bill  is  received. 


Jno. 

To 

2%  10  days 

Jones  Co. 

Date 

10  Boxes  Curfew  Com 

Price  per  Doz. 
$1.50 

Quantity 
20 

Extension 
$30.00 
6.00 

Less  20%  trade  discount 

Net 

Less  2% 

24.00 

.48 

23.52 

The  following  freight  list  is  for  this  shipment. 


To. 


B.  &  A. — Freight  Bill 

From  Jno.  Jones  Co. 


10  Boxes  Canned  Com.. 


Weight 
500 


Rate 
48 


Amount 

$2.40 


The  bookkeeper  makes  the  following  entries.  . 
Mdse.  purchased  Freight  &  Cartage         Discount  on  purchases 


$24.00 


$2.40 


$0.48 


The   buyer  makes  the  following  entries   in  his   cost  book. 


Firm 

Brand 

Si- 
ze 

Un- 
it 

Price 

Mdse. 
disc. 

Frt. 

Cash 
disc. 

First 
cost 
net 

Change 
cost 

Sell 
price 

% 

Mark 

up 

Jones 

Curfew 

2 

$1.50 

per 
doz. 

20% 

.01 

2% 

.11 

.15 

26% 

1 

i 

252 


CHAIN  STORES 


And  the  above  results  he  writes  on  the  bulletin,  discussed  in 
detail  later,  as  follows: 


Item 

Cost 

Retail 

Curfew  Corn 

.11 

.15 

From  this  the  clerks  concerned  in  the  office  enter  the  informa- 
tion on  their  cost  and  selling  price  lists. 

Now  assume  that  store  No.  5  orders  five  cases  of  this  corn. 
This  order  comes  in  on  the  regular  order  blank  which  is  described 
in  the  section  on  retail  accounting. 

When  this  order  has  been  filled  and  checked  out  by  the  ship- 
ping clerk,  it  comes  back  into  the  office  to  the  cost  clerks  to  be 
figured.  From  their  price  lists,  which  correspond  exactly  with 
the  cost  record  book  of  the  buyer,  they  enter  as  follows: 


Order  Blank 
Store  No.  5 

Units 

Cost 

Retail 

Price 

Amt. 

Price 

Amt. 

5  Cases 

120 

Curfew  Corn 

.11 

13.20 

.15 

18.00 

Cost  figures— WBC 
Retail— DEF 

Posted  By 
GH 

Retail 
Cost.. 
Profit 

$18.00 

13.20 

4.80 

Gross. . . . 

From  this  order  blank  the  bo 
Mdse  shipment  A  (Cost) 

okkeeper  enters 
Mdse  shipm< 

jnt  B  (Profit) 

$13 

.20 

Store 

No.  5 

$4.80 

$18.00 

PURCHASING  RECORDS 


253 


Now,  let  us  suppose  the  fiscal  period  is  at  an  end.  A  physical 
inventory  is  taken;  and  Curfew  Corn  is  typical  of  every  item  in 
stock.  The  stock  in  the  warehouse  is  counted  and  found  to  con- 
sist of  five  cases.  This  quantity  is  entered  on  the  inventory 
sheet  by  the  man  counting  stock.  The  inventory  sheet  is  sent  in 
to  the  buyer  (or  his  assistant)  to  be  priced.  He  refers  to  his 
cost  record  book  (if  the  market  remains  unchanged)  and  enters 
the  price  on  the  inventory.     It  is  next  extended  as  follows: 


Description 

Unit 

Price 

Extensions 

5  Cases 

Curfew  Corn 

120 

.11 

$13.20 

Totals 

$13.20 

Since  the  assumption,  for  the  sake  of  simplicity,  is  that  Curfew 
Corn  represents  the  whole  stock  of  merchandise,  the  bookkeeper 
takes  $13.20  as  the  total  merchandise  inventory  for  closing  his 
books. 

It  can  now  be  determined  how  near  the  book  inventory  is  to 
the  physical  inventory.  The  bookkeeper  closes  into  simple 
"merchandise  trading  account"  the  merchandise  purchased  and 
merchandise    shipments    at    cost    and    freight    on    purchases. 


Merchandise  Trading  Account 

Purchase 

Frt.  on  purchase . 

Book  Val.  Inv.  . 

$24.00 

2.40 

Mdse  shipment  A  at  cost. 
Balance 

$13.20 
13.20 

$26.40 

$26.40 

$13.20 

The  book  value  of  the  inventory  is  now  seen  to  be  the  same 
as  the  actual  value  after  a  physical  count  has  been  priced  and 
extended  from  the  cost  record  book.  In  other  words,  the  cost 
and  price  lists  have  been  kept  in  such  a  way  that  they  tally  with 
the  accounts  of  the  bookkeeper.     The  records  used  for  the  daily 


254 


CHAIN  STORES 


figuring  of  merchandise  transactions  in  detail  are  seen  to  con-e- 
spond  to  the  books  of  accounts,  and  these  figures  taken  off  the 
books  at  any  time  (on  short  notice)  can  give  a  virtually  accurate 
statement  of  actual  condition.  This  is  of  great  advantage  to 
the  management;  for  it  gives  at  any  time  the  following  data: 

(a)  Cash  (book)  value  of  merchandise  inventory  (warehouse)  at  cost. 

(b)  Shipments  to  the  company's  retail  stores  at  cost  and  at  retail. 

(c)  Book  profit  (Gross)  for  the  whole  business  and  per  store. 

Price  Changes. — The  above  case  assumed  is  a  simple  one  and 
an  ideal  one.  As  a  matter  of  fact,  the  market  is  shifting  up  or 
down  a  great  deal;  and  besides,  goods  are  constantly  deteriorat- 
ing in  the  warehouse  stock.  It  is  necessary,  therefore,  to  set  up 
two  more  accounts  "Warehouse  Mark-ups  and  Mark-downs" 
and  "Salvage." 

In  the  case  of  the  first,  suppose  that  the  buyer  now  purchases 
ten  cases  more  of  Curfew  Corn.  This  time  he  pays  $1.80  per 
dozen,  less  20  per  cent,  for  it.  When  he  comes  to  figure  his 
invoice,  he  finds  he  must  raise  his  cost  from  .11  to  .13,  and  his 
selling  price  from  .15  to  .18.  Then  he  makes  the  following 
entries. 

I.  In  the  cost  record  book  he  rubs  out  the  old  figures,  which 
were  in  pencil,  and  puts  in  the  new  ones,  in  pencil  also. 

Canned  Corn 


Firm 

Brand 

Si- 
se 

Un- 
it 

Price 

Mdse 
disc. 

Frt. 

Cash 
disc. 

First 
cost 
net 

Change 
cost 

Sell 
price 

Jones 

Curfew 

2 

$1.80 
doz. 

20% 

.01 

2% 

.13 

.18 

22% 

II.  On  the  daily  bulletin  he  makes  the  following  announcement: 


Curfew  Corn 

Old  cost 11 

New  cost 13 


Old  retail 15 

New  retail 18 


The  cost  clerks  get  their  information  and  change  the  price 
in  their  books  from  this  daily  bulletin.     Moreover,  the  clerk 


PURCHASING  RECORDS 


255 


in  charge  of  keeping  the  retail  stores  informed  of  price  changes 
sends  them  out  notice  of  the  retail  price  change  by  the  methods 
explained  in  detail  elsewhere. 

III.  On  the  warehouse  mark-up  voucher  the  buyer  enters  the 
item  and  the  old  and  new  unit  cost  prices  and  difference.  He 
next  signs  and  dates  this  and  sends  it  to  the  stock  man.  The 
latter  at  once  goes  to  the  pile  or  piles  of  the  merchandise  listed 
on  the  mark-up  voucher,  gets  the  physical  count,  and  at  once 
turns  it  back  to  the  proper  person  in  the  office,  who  figures  it 
and  then  turns  it  over  to  the  bookkeeper. 

The  following  entries,  for  example,  are  made  on  the  warehouse 
mark-up  voucher: 


Warehouse 
Mark-up  Voucher 

No.  467 
Date  3-1-22 

Stock 
counted 

Articles 

Old 
cost 

New 
cost 

Mark- 
up 

Am't. 

Extension 

5  Cases     Curfew  Corn 

.11 

.13 

.02 

120 

2.40 

Totals. . . . 

2.40 

Stock  costed  on by 

Mark-down  figured by 

Entered  mdse.  cost by 

Entered  cost  book by 

The  bookkeeper  now  enters: 

Warehouse  Mark-ups  and  mark-downs 


No.  467  M.  U $2.40 


Now  let  us  suppose  the  10  cases  ordered  the  second  time  come 
in,  and  five  cases  are  again  sold  to  store  No.  5.  And  let  us 
suppose  that  immediately  after  this  comes  the  periodic  physical 


256 


CHAIN  STORES 


inventory  of  the  warehouse  stock  at  cost.     The  books  should 
show  the  following: 

Merchandise  Purchases  (Billed  cost) 


Inventory $13.20 

Second  Lot  Purchased 28 .  80 


Freight  and  Cartage  on  Mdse.  Purchased 
Second  lot  Frt $2.40 

Merchandise  shipments  A  (at  cost) 


Store  No.  5 $15.60 

Merchandise  shipments  B  (profit) 


Store  No.  5 $6.00 

Store  No.  5 


Mdse.  Shipments $21 .60 

Mark-ups  and  mark-downs 


No.  467  MU $2.40 


By  transferring  these  into  a  single  merchandise  trading  account, 
we  have: 

Merchandise  Trading  Account 


Inventory $13.20 

2d  lot  purchased 28.80 

Frt.  2d  lot 2.40 

MU467 2.40 

$46.80 


Inventory $31 .20 


Shipments  A  (at  cost) . . . 
Balance  (Bk.  Inventory). 


$15.60 

31.20 

$46.80 


This  gives  a  book  inventory  at  $31.20.     By  actual  count  there 


PURCHASING  RECORDS 


257 


should  be  10  cases  in  stock.  The  counter  enters  this  on  an 
inventory  blank  and  sends  it  to  the  office  to  be  costed  and 
extended.  The  buyer  enters  the  cost  from  the  cost  record  book 
at  .13  per  unit  and  extends  as  follows: 


lOcs.  Curfew  Corn — 240  cans 


13— $13.20 


Similar  entries  on  the  credit  side  of  the  ledger  should  be  made 
in  case  of  a  mark-down. 

Salvage. — The  "salvage"  account  is  set  up  for  the  following 
reasons  and  in  the  following  way: 

Let  us  suppose  that,  out  of  the  10  cases  of  Curfew  Corn,  24  cans 
or  one  whole  case  spoiled  while  in  the  warehouse  before  inventory. 
How  is  the  merchandise  to  be  credited?  If  the  cans  are 
"dumped"  and  no  count  taken,  there  will  be  a  discrepancy 
between  book  and  physical  inventories.  Therefore,  a  salvage 
account  is  set  up,  and,  to  take  care  of  this,  a  system  of  records 
known  as  salvage  vouchers  is  inaugurated. 

Salvage  Voucher 


No.  40 

Folio  No 

To Date... 

Condition 

Quantity 

Cost  Price 

Extension 

1 

1                                                    ' 
1                          .                          i 

1             : 

1 
1 

Disposition Entry  made  on  books  of  account 

By By Date 

The  stock  man  has  a  pad  of  these  vouchers  in  his  desk.  As 
soon  as  he  finds  any  articles  spoiled  or  damaged,  he  takes  them 
out  of  the  main  stock  and  segregates  them  in  a  separate  section 

17 


258 


CHAIN  STORES 


called  ''The  Hospital."  At  the  same  tune,  he  fills  out  a  salvage 
voucher  and  sends  it  in  to  the  buyer  or  merchandise  manager. 
The  latter  comes  out  and  inspects  the  goods,  determines  whether 
or  not  they  have  a  saleable  value.  He  then  orders  disposition 
of  them  (whether  to  be  dumped  or  held  in  hospital  for  sale  at  a 
price),  indicates  this  on  the  salvage  voucher  and  brings  the 
voucher  into  the  office  with  him,  where  it  is  figured  and  turned 
over  to  the  bookkeeper.  Merchandise  is  credited  with  the 
entire  amount  and  salvage  is  charged.  If  any  goods  in  the  hospi- 
tal are  subsequently  sold,  salvage  is  credited  with  the  amount 
they  have  brought  in. 

If  we  assume  the  loss  to  be  24  cans  of  Curfew  Corn,   the 
accounts  are  as  below: 


Merchandise 


Salvage 


Salvage   $3.12 


Curfew  Corn  $3 .  12 


In  order  to  obtain  uniformity,  economy,  and  standardization. 
Warehouse  Mark-Down  and  Mark-Up  Vouchers,  Warehouse 
Salvage  Vouchers,  and  Warehouse  Credit  Memos  should  all  be 
of  the  same  size  and  fit  the  same  size  post  binders.  If  a  physical 
inventory  is  now  taken,  nine  cases  of  Curfew  Corn  will  be  found 
in  stock.  Extended  at  .13  per  can,  they  amount  to  $28.08. 
Thus  the  merchandise  account  closes  correctly. 


Merchandise  Account 


Inventory $13.20 

Second  lot  purchased 28 .  80 

Freight 2.40 

Mark-up  467 2.40 

$46.80 
Inventory $28.08 


Shipments  A  (at  cost) $15.60 

Salvage 3.12 

Inventory  balance 28 .  80 

$46.80 


The  greatest  service  the  salvage  account  and  salvage  system 
renders  is  that  it  informs  the  buyer  of  spoilage,  in  whole  or  in 
part,  as  soon  as  it  comes  to  the  attention  of  the  stock  man.  By 
this  means,  damaged  goods  can  often  be  sold  at  once  at  a  price 


PURCHASING  RECORDS  259 

whereas  otherwise  the  goods  might  not  be  discovered  until  all 
saleable  value  had  departed.  When  goods  are  sold  from  Hos- 
pital, salvage  is  credited  and  the  buyer  can  reduce  his  salvage 
losses.  This  is  particularly  true  in  the  case  of  vegetables,  fruits, 
cheese,  meats,  butter,  dried  fruit,  etc. 

Processes  Involved  in  a  Typical  Purchase. — It  seems  appro- 
priate before  leaving  the  warehouse  problem  to  include  a  few 
remarks  regarding  processes  involved  in  the  typical  purchase 
and  receipt  of  goods.     This  will  show  how  the  various  procedures 


Fig.  33. — Temporary  invoice  file. 

above  mentioned  dovetail  into  one  another  and  tend  to  make  the 
whole  central  organization  function  properly. 

The  buyer  learns  from  inspection  of  stock  cards  (or  daily 
shortage  list  on  daily  executive  report  explained  later)  and 
subsequent  reference  to  cards,  that  it  is  time  to  make  a  purchase 
of  a  certain  article  of  merchandise.  From  the  information  the 
stock  card  gives  him,  showing  the  average  weekly,  monthly,  or 
seasonal  sales  of  the  past,  the  buyer  determines  what  quantity 
to  purchase.  He  then  writes  the  order  on  his  duplicate  purchase 
order,  referring  to  his  cost  record  book  for  the  previous  cost,  if 
need  be.  In  the  "ordered"  column  of  the  stock  card,  he  enters 
the  date  and  quantity  ordered.  One  copy  of  the  purchase  order 
he  keeps  in  his  loose-leaf  binder  (preferably  indexed  alphabetic- 


260  CHAIN  STORES 

ally  according  to  firm  name  of  source).  The  other  copy  he  sends 
to  the  source — the  manufacturer,  grower,  or  broker. 

In  the  course  of  a  few  days,  confirmation  arrives  from  the 
manufacturer,  and  the  buyer  notes  this  on  his  retained  copy  of 
the  purchase  order  and  attaches  confirmation  to  it.  Later,  the 
invoice  arrives.  The  buyer  should  now  compare  the  invoice  with 
his  purchase  order  and  checks  prices,  discounts,  and  terms,  mark- 
ing on  the  purchase  order  the  date  of  shipment.  It  is  recom- 
mended that  the  buyer  have  two  loose-leaf  binders  for  his  copies 
of  purchase  orders ;  one  for  current  orders  not  completely  shipped ; 
the  other  for  orders  completely  shipped. 

If  there  are  no  discrepancies,  he  puts  his  O.  K.  on  the  invoice, 
notes  in  it  the  discount  date,  and  turns  it  over  to  the  clerk 
in  charge  of  the  temporary  invoice  file. 

The  temporary  invoice  file  should  be  arranged  with  the  follow- 
ing sections,  see  Fig.  33 : 

1.  Invoices  not  paid  and  not  received. 

2.  Invoices  not  paid  but  received. 

3.  Invoices  paid  but  not  received. 

4.  Invoices  pending  allowances  or  disputes. 

5.  Invoices  pending  claims  against  carriers. 

In  each  of  these  sections  the  invoices  are  to  be  kept  loose  and 
arranged  alphabetically  by  commodities,  in  the  same  order 
as  the  price  list  and  stock  record  files.  This  standardizes  and 
facilitates  the  work  of  the  clerk  making  entries.  This  provision 
gives  a  regular  arrangement  for  every  article  carried,  and  the 
clerk,  as  stated  previously,  turns  automatically  to  the  right  page. 
The  office  clerks  '  have  a  mental  picture  of  the  order  of  the 
price  book  so  that  when  they  think  of  any  item  they  immediately 
associate  it  with  the  standard  place  in  the  registered  order 
of  the  lists  and  files. 

By  having  five  separate  sections,  provision  is  made  for 
paying  invoices  on  the  discount  date,  even  if  goods  are  not 
yet  received,  and  for  holding  invoices  pending  a  settlement  before 
putting  in  the  permanent  invoice  file  and,  most  important  of 
all,  for  separating  the  invoices  of  goods  received  from  those 
of  goods  not  received.  This  last  feature  greatly  aids  the  clerk 
who  is  checking  receiving  records  against  the  invoices. 


PURCHASING  RECORDS 


261 


To  return  to  a  strict  discussion  of  the  typical  course  of 
a  purchase  and  receipt  of  goods,  when  the  articles  arrive  at  the 
warehouse,  the  stock  man  enters  the  quantity  and  condition  on 
his  receiving  record,  as  described  heretofore,  and  the  duplicate 

BUYERS  BOOKS  FINANC/AL  BOOffS 


Purchase  Orders 


Invoice  ct 
Billed  Cost 


Freight  or  Cartage 
Expense  Bill 


I  V^ier     I 


Unit  Cost  Figured 


Cost-  Record  Book    | 

Retail  Store 
Price  Lists 

Office  Clerks 
Price  Lists 

RETAILSTORE  ORDER 
FOR  MERCHANDISE 

Unit  Cost  +  Retail  Prices 
Figured  ond  Entered  and 
Totals  in  Order 


Accounting  Department 


Total  Cost  of  Shipment  Entered 


Billed  Cost 
Plus  Freight 


Cash  Discount 
As  An  Earning 


CONTROL  ACCOUNTS 

Totals  On  All  Orders  for  the 
Day  [Cost,  Retail  and  Profit) 
Entered  a  Posted  to  Control  Accounts 


INDIVIDUAL  STORES 
LEDGER  PAGES 

Total   Relui  I  Charges  to  Store, 
and  Total  Profit  Entered  in  a 
Memorandum  Column 


FiQ.  34. — Course  of  purchase  order. 

copy  of  this  he  sends  to  the  clerk  in  charge  of  the  temporary 
invoice  file.  This  clerk  turns  to  the  section  "Invoices  not 
paid  and  not  received,"  picks  out  the  invoice  of  this  shipment, 
and  stamps  it  received.  He  now  enters  the  date  and  quantity  in 
the  "received"  column  of  the  proper  stock  card  and  then  turns 
the  invoice  with  attached  freight  or  cartage  expense  bill  over  to 
the  buyer. 


2G2  CHAIN  STORES 

The  buyer  now  refigures  the  net  unit  cost  per  item  on  the 
face  of  the  bill  and  compares  this  with  the  figures  on  his  cost 
record  book.  If  there  is  any  change  he  takes  the  necessary  steps 
by  means  of  the  mark-up  and  mark-down  vouchers,  bulletins, 
etc.,  to  bring  all  cost  and  selling  price  lists  uniformly  up  to  date, 
and  then  turns  the  invoice  back  to  the  clerk. 

If  the  goods  are  in  stock  for  the  first  time,  a  new  entry  is 
made  on  the  cost  record  book,  and  the  information  is  put  on 
the  bulletin  so  that  the  addition  will  be  made  on  all  lists. 
The  clerk  now  puts  the  invoice  in  its  proper  section  of  the 
temporary  invoice  file  awaiting  payment.  In  this  case,  it  would 
go  into  Section  Two. 

This  clerk  is  responsible  for  seeing  that  invoices  are  paid 
at  the  proper  time.  One  of  his  first  duties  is  to  go  through 
the  file  and  turn  over  to  the  bookkeeper  for  payment  all  the 
invoices  due  that  day.  The  bookkeeper,  after  paying  them, 
stamps  them  paid,  and  turns  them  back  to  the  clerk  who  puts 
them  either  in  the  temporary  invoice  file  (if  goods  are  not 
received,  or  if  some  question  is  pending),  or  files  them  away  in 
the  permanent  file. 

Conclusions. — This  finishes  the  technical  discussion  of  stock- 
keeping,  stock  accounting,  and  purchasing  records.  The  three 
are  interdependent  in  the  processes  of  handling  the  merchandise 
from  its  source  to  the  retail  store.  Figure  34  shows  in  chart 
form  the  various  phases  through  which  an  order  for  purchase 
passes  before  the  receipt  of  the  goods  is  finally  checked  off  on  the 
individual  stores'  ledger.  This  chart  might  be  used  for  various 
other  types  of  chain  stores,  and  is  not  necessarily  confined  to 
groceries,  although  if  it  were  used  elsewhere  there  would  have 
to  be  modifications. 

The  forms  shown  in  this  chapter  are  illustrative  of 
a  method  now  in  use  and  should  be  used  suggestively  rather  than 
copied  exactly.  If  it  merely  indicates  some  ways  in  which  a 
present  system  may  be  made  to  function  more  efficiently,  the 
detailed  explanation  given  will  have  served  its  purpose. 


CHAPTER  XVII 
SUPERVISION  OF  RETAIL  OUTLETS 

Outline 

Uniform  retail  prices  throughout  chain  secured  by 

1.  Price  Usts. 

2.  Daily  bulletins. 

3.  Retail  mark-ups  and  mark-downs. 

4.  Weekly  change  sheets. 
Price  hsts. 

1.  Figured  by  buyer. 

2.  Sent  to  store  managers. 
Daily  bulletins. 

1.  Containing 

(a)  Changes  in  cost. 

(6)   Notation  of  new  goods. 

2.  Duty  of  clerk  to  send  copy  to  all  store  managers. 
Mark-ups  and  mark-downs. 

1.  Routine  practice. 
Weekly  change  sheet. 

1.  Compilation  of  all  changes  on  daily  bulletins. 

2.  Store  manager  held  responsible  for  prices  on  weekly  change  sheets. 
Policing  of  retail  outlets. 

1.  Personal  visits  to  store. 

(a)  Check  up  prices. 
(6)   Inspect  care  of  store, 
(c)    Check  cash  register. 

2.  Physical  inventory. 

(a)  At  regular  stated  intervals. 

3.  Traveling  auditors. 

Account  methods  for  retail  operations. 

1.  Regular  warehouse  shipment  order. 

2.  Credit  memorandums  for  goods  returned  to  warehouse  by  stores. 

3.  Daily  reports  of  store  managers. 

4.  Use  of  special  ruled  cash  receipt  book. 

5.  Use  of  periodic  retail  store  inventories. 

6.  Arriving  at  percentage  of  retail  store  profit. 


263 


CHAPTER  XVII 
SUPERVISION  OF  RETAIL  OUTLETS 

By  John  S.  Fleek 

This  chapter  contains  a  model  system  of  controlling  retail 
outlets  as  used  in  a  moderate  sized  grocery  chain.  Other  methods 
are  outlined  in  other  chapters,  but  for  a  better  understanding  of 
the  subject,  it  has  been  thought  wise  to  follow  out  one  system  and 
one  definite  example  throughout  the  whole  process,  in  order  that 
anyone  really  interested  in  the  continuity  of  the  routine  followed 
may  find  it  easier  to  understand. 

The  framework  of  sound  accurate  accounting  methods  and 
of  direct  merchandise  price  control  must  be  supplemented  by  fre- 
quent inspection  in  person  by  the  store's  superintendent  and  the 
chief  executive. 

As  the  organization  assumes  larger  proportions,  the  executive 
finds  that  haphazard  supervision  of  checks  and  balances  and 
policing  can  no  longer  obtain  if  he  is  to  have  efficient  control  of 
his  business.  A  regular  routine  of  duties  needs  to  be  established 
so  that  the  individual  store  account  will  show  actual  conditions; 
the  store  managers  sell  articles  at  the  price  determined  upon ;  and 
the  superintendent  and  his  assistants  follow  the  stores  properly 
and  see  that  instructions  are  being  obeyed. 

Uniform  Pricing. — Uniform  retail  prices,  as  fixed  by  the  central 
office  throughout  all  the  branch  stores,  are  brought  about  by  the 
following  means : 

1.  Price  lists. 

2.  Daily  bulletins. 

3.  Retail  mark-up  and  mark-down  notices. 

4.  Weekly  change  sheets. 

Prices  are  established  and  proceed  from  the  merchandise 
department.  The  buyer  figures  a  unit  cost  on  each  article  and 
then,  by  himself  or  by  the  advice  of  the  executive  department, 
the  selling  price  ("retail").     Both  these  figures  are  entered  in 

264 


SUPERVISION  OF  RETAIL  OUTLETS  265 

the  Cost  Record  Book — see  page  250 — which  becomes  a  fountain 
head  of  all  knowledge  to  the  organization  in  so  far  as  merchan- 
dise prices  (cost  and  retail)  are  concerned. 

The  office  figuring  clerks  and  superintendent  are  given  com- 
plete price  lists  of  all  articles  carried,  for  these  individuals  must 
have  constant  records  of  such  information. 

Retail  store  managers  are  likewise  given  complete  price  lists, 
which  are  virtually  copies  of  the  cost  record  book,  and  identical 
with  the  office  price  lists,  except  that  only  the  retail  prices  appear 
therein.  The  store  managers  thus  know  the  price  at  which  to 
sell  every  item  and  can  put  price  tags  on  their  shelves  accurately. 

Were  it  not  for  the  fact  that  prices  are  constantly  chang- 
ing and  articles  being  added  to  or  taken  off  the  selling  list, 
the  problem  of  price  control  would  be  solved  merely  by  issuing 
the  lists  to  the  retail  managers.  But  the  solution  is  not  so 
easily  achieved  and  the  problem  thus  becomes  one  of  providing 
for  getting  the  changes  that  are  known  in  the  office  and  there 
recorded  in  the  Cost  Record  Book  to  all  the  books  of  all  the 
retail  store  managers.  This  dissemination  of  information  is 
brought  about  by  means  of  (a)  the  daily  bulletin,  (6)  the  retail 
mark-up  and  mark-down  notices,  and  (c)  the  weekly  change 
sheets. 

(a)  The  Daily  Bulletin  is  kept  in  a  diary  form  at  a  central 
point  in  the  central  offices,  so  that  the  office  clerks  may  have 
ready  access  to  it.  In  it  the  buyer  enters  changes  in  cost  and 
selling  price  of  the  articles  carried  in  stock  from  the  data  on  his 
Cost  Record  Book,  and  makes  notation  of  new  goods  just  arrived, 
giving  their  cost  and  selling  price,  and  of  goods  no  longer  carried. 
The  office  figuring  clerks  make  the  changes  on  their  price  lists 
from  this  information  and  initial  the  entries  on  the  Daily  Bulletin 
to  show  their  responsibility  for  having  brought  the  lists  up  to 
date. 

In  order  to  get  this  information  out  to  the  stores  at  a  given 
time  each  day,  it  is  the  duty  of  one  clerk  to  make  copies  of  the 
Daily  Bulletin  page,  recording  only  retail  prices,  and  to  send  them 
out  to  all  the  retail  managers. 

If  speed  is  desired  in  transmitting  the  price  changes,  the  retail 
managers  can  be  given  the  latest  prices  over  the  telephone, 
having  the  messages  confirmed  later  by  a  copy  of  the  Bulletin. 


266 


CHAIN  STORES 


(b)  The  same  clerk  makes  out  mark-ups  and  mark-downs  and 
prepares  notices  for  all  the  stores  from  the  information  on 
changes.  When  the  store  manager  receives  a  mark-up  or  a 
mark-down  notice,  he  counts  his  stock  of  the  articles  enumerated, 
signs  the  slip  and  returns  it  with  his  next  daily  report  showing  the 
additional  merchandise  charge  or  credit  on  this  report.  See 
Figure  35. 

(c)  Weekly  Change  Sheets  are  made  out  every  Saturday  and 


MARK-UP  VOUCHER 


N9       203 


STOCK  COUNTED 

MAIN  •tOCK 

WAmtnov— 

"ST 

ARTICLE 

mice 

putca 

-•« 

TOTAL 

OUAMTITT 

lUO 

«" 

CltTCMII«n 

— 

BY   ORDER  OP_ 


STOCK  COUNTCD  ON- 


i'UP   riOURCD  ON_ 


ENTVnCD  MDSK.  ACCT.  ON_ 
CHTKRCO  COST-BOOK  ON_ 


Fig.  35. — Mark-up  voucher. 

mailed  to  the  retail  store  managers.  Figure  36  shows  form  in 
use  in  a  grocery  chain.  These  sheets  constitute  a  compilation  of 
all  the  changes,  additions,  corrections,  and  deductions  that  have 
appeared  on  the  daily  bulletins,  and  serve  as  an  additional 
means  of  verifying  the  retail  price  lists  and  of  bringing  them 
up-to-date.  The  store  manager  is  held  directly  responsible  for 
seUing  his  groceries  at  the  prices  given  on  the  last  change  sheet. 
Consequently,  as  soon  as  he  receives  one,  he  should  at  once  go 
over  his  price  Hst  with  it,  making  the  necessary  changes  and 
corrections. 

It  is  understood  that  prices  on  these  hsts  will  be  entered  in 


SUPERVISION  OF  RETAIL  OUTLETS  267 

Change  Sheet  No.  G  and  Weekly  Bulletin 
Instructions. 

This  Change  Sheet  is  issued  at  the  same  time  that  Price  List  No.  1 
is  given  to  you.  Go  over  your  price  list  at  once  with  this  Change 
Sheet  and  make  the  necessary  additions  and  corrections  on  the  price 
list  as  per  instructions  in  general  order  attached. 

2.  These  are  the  changes  of  the  past  week.  Owing  to  the  length  of 
time  it  took  to  get  the  Price  List  printed,  it  comes  to  you  a  week  late. 
Hence  you  have  all  these  changes  to  make  at  once. 

3.  Biscuit  Lists  for  Loose-Wiles  and  National  will  be  sent  out  in  a 
few  days. 

Price  Changes  and  Additions 
Ammonia  and  Bluing 

New       Sawyer's  Bluing,  large 25 

Butter,  etc. 

New       Diamond  Oleomargarine 31 

Change  Butter  tubs 63 

Canned  Goods 

New       Star  Boneless  Herring 19 

Change  Red  Salmon 35 

Change  Tomatoes  No.  2 11 

New       Libby  Tomato  Soup ' 08J4 

Cheese 

New       Blue  Ribbon,  cream 17 

New       Blue  Ribbon,  pimento 17 

Change  Mild 37 

Change  Young  America 39 

Cocoa  and  Chocolate 

New       Bensdorps  Cocoa,  2  oz 14 

Change  Beck  cocoa,  unsweetened .25 

Change  Beck  cocoa,  sweetened 29 

Crisco  and  Oils 

Change  Mazola,  pts 33 

Eggs 

New       Monogram  eggs 72 

Fish 

Change  Beardsleys  Shredded  Cod 34 

Flour,  etc. 

Change  King  Arthur,  12^^ 115 

Change  King  Arthur,  243^ 2.20 

Change  Aunt  Jemima,  pc 20 

Change  Rice,  Flutter,  pk 12)^ 

Change  Corn  meal,  pkg 05^ 

Change  Corn  meal,  bulk 05 

Etc^ 

FiQ.  36. — Form  of  weekly  change  sheet. 


268  CHAIN  STORES 

pencil  to  facilitate  making  the  many  alterations  now  so  fre- 
quently necessary. 

Thus,  by  daily  bulletins,  mark-up  and  mark-down  notices, 
and  weekly  change  sheets,  all  price  lists  in  their  several  degrees 
of  completeness  are  made  to  conform  with  the  latest  entries  on 
the  Cost  Record  Book,  and  thus  a  system  of  merchandise  and 
price  control  is  established. 

Policing  of  Retail  Outlets. — Constant  personal  supervision 
and  jwlicing  of  the  retail  branches  is  necessary;  for  in  no  other 
way  is  the  central  office  to  know  whether  instructions  are  being 
obeyed  and  whether  the  store  managers  are  honest.  To  provide 
this,  the  store  superintendent  tries  to  visit  each  store  every  day. 
On  such  trips  he  will  check  up  the  prices  and  price  list  of  the 
manager,  will  inspect  the  store  for  cleanliness,  window  displays, 
appearance,  and  general  marketing  methods,  and  will  get  a  check 
on  the  cash  register. 

It  is  distinctly  desirable  that  the  superintendent  take  a 
physical  inventory  of  each  store  at  least  once  a  month.  This 
shows  up  leakage  through  carelessness  and  dishonesty  in  an 
undeniable  manner.  If  goods  are  charged  against  a  store  at 
retail  from  the  first  of  the  month,  to  the  amount  of  $500,  and 
at  the  time  of  inventory  the  cash  register  shows  sales  at  retail 
amounting  to  $400,  clearly  the  store  should  have  an  inventory 
that,  when  figured  at  retail  amounts,  should  come  to  $100. 

Many  chains  have  traveling  auditors  who  visit  branch  stores 
at  specified  or  unexpected  times  and  take  inventory. 

Accounting  for  a  Retail  Grocery  Store. — In  the  development  of 
a  system  of  accounts  to  provide  the  needed  information  and 
checks  upon  retail  outlets,  it  is  well  to  consider  what  would 
happen  if  a  new  branch  were  being  opened,  which  we  may  call, 
for  purposes  of  illustration.  Store  No,  35. 

The  store  manager  sends  to  the  central  office  his  initial  order 
on  the  company's  order  blank.  See  Figure  37.  The  order  is 
registered  and  goes  out  to  the  warehouse  to  be  filled.  Here  the 
shipping  clerk  "checks  out"  the  order  for  store  No.  35  as  he 
loads  the  truck,  seeing  that  the  proper  quantities  and  units  are 
entered  on  the  order  blank.  The  driver  takes  a  yellow  copy  of 
the  order  with  the  goods  so  that  the  store  manager  can  check  up 
the  items  delivered  and  can  use  it  as  a  basis  for  giving  a  receipt 


SUPERVISION  OF  RETAIL  OUTLETS 


269 


WAREHOUSE  ORDER 

Stort  No. 

_Sheet.No 

DATE  OKDERED    1     DATE  RECEIVED  1          AJPROVED          1      REGISTER  NO. 

DATE  SHIPPED     1      SHIPPING  NO.       1 

;ileck 

Qu.D 

Unit 

ARTICLE 

SIZE 

iRAXD 

Con' 
ta!n« 

LOT 
NO. 

Price 

COST 
Extension 

Price 

RET  A  a 

Extension 

1 

2 

^ 

_ 

1 

1 1 T 

40 

41 

EZTAIL  EKICES  CHECKED  BY 

ri  1                                r  oi 

TOT AI  COST 

PROFIT 

[3j  BETAILraiCES 

POSTED  BY 

[4]        COST  BY 

R£TAU 

16]        008T  FOOTED  B? 

LOj     COST  POSTED  BY 

Store  No.                    '    I 

Fig.  .37. — Warehouse  order  blank. 


To- 


CREDIT  VOUCHER 


SALESMAN- 

No.  (  


No.    702 


CONDITION 

qOAM. 
TITY 

ARTICLES 

gUAN. 
TITY 

BELLING  PBICE 

[    COSTPRiqE 

^BI3E 

Alloc  NT 

PB13E 

AMOCNT 

1 ' 

J 1 

— RecId_oil 


_AppisiedJt)j_ 


R.B.  CL.\IM 
Cltim  Entered  Aftlsit 


Dtte_ 


Amount   $_ 

Our  attaJSa. 

kfil 


CREDIT  ANALYSIS 

1.    Credit  Entersd  ob Bj_ 

Against 


i.    Credit  Notice  Card  sent 


-%. 


3.    No  Notice  Needed . 


Traffic  Ufc 

Fig.  38. — Credit  voucher. 


270 


CHAIN  STORE.'^ 


for  the  merchandise  and  comparison  with  the  charge  against 
his  store. 

The  white  copy  of  the  order  the  shipping  clerk  sends  to  the 
office  to  be  extended.  The  clerks  price  and  extend  the  ordei 
from  their  price  lists,  enter  the  totals  for  "costs,"  "retail,"  and 
"profit,"  and  the  order  is  then  ready  for  posting. 

Orders  for  the  day  are  bound  and  numbered  in  a  permanent 
folio  and  thus  become  part  of  the  quasi-sales  book,  or  folio 
number  being  used  as  a  check  in  posting.  Totals  for  the  day  are 
posted  to  the  various  merchandise  accounts. 


Store  No.  35 
Jan.  1,  1922 

Folio  No.  46 

Unit 

Article 

Size 

Brand 

Price 

Cost 

Price 

Retail 

100 

XX 

2y2 

XX 

.80 

80.00 

1.00 

100.00 

Total  cost $  80.00 

Total  profit 20. 00 

Total  retail 100. 00 

The  bookeeping  entries  are  as  follows  for  January  1 : 

A.  In  case  of  the  Journal  for  Control  Accounts  (daily  total) 
Jan.  1,  1921 

Shipments  to  retail  outlets $100.00 

To  mdse.  costs $80.00 

To  mdse.  profits 20.00 

B.  In  the  case  of  Ledger  page  on  Store  No.  35 


Store  35                                                                                                Page  142 

Date 

Folio 

Item 

Debit 
at  retail 

Memo, 
profit 

Date 

Folio 

Item 

Credit 
retail 

Memo, 
profit 

1/1 

46 

Order 

100.00 

20.00 

1/1 

Cm-16 

Return 

10.00 

2.00 

/3 

Daily 

4.40 

1.65 

/3 

c-61 

Cash 
sales 

26.75 

Report 

1/4 

1-14 

Inv. 

67.65 

/4 

Inv. 

104. 40 
67.65 

104.40 

SUPERVISION  OF  RETAIL  OUTLETS 


271 


If  now  No.  35  sends  back  part  of  the  goods  delivered  on  Janu- 
ary 2,  the  receiving  clerk  makes  out  a  slip  on  the  credit  memo- 
randum, see  Fig.  38,  entering  only  quantity  and  description. 
An  authorized  person  then  inspects  the  goods  and  determines 
whether  credit  will  be  allowed.  If  the  credit  is  O.K'd,  it  will 
go  to  the  clerks  first  to  be  figured  (cost,  retail  profit)  and  then 
to  the  bookkeeper. 

Credit  Memo 

Cm  Folio  No.  16 

To Date  Jan.  2,  1921 


Condition 

Quantity 

Articles 

Quantity 

Cost 

Retail 

Profit 

Price 

Am't 

Price 

Am't 

O.K. 

10 

XXX 

.80 

8.00 

1.00 

10.00 

2.00 

These  credit  memos  are  put  in  a  permanent  folio  and  numbered 
When  the  credits  are  posted,  the  bookkeeper  sends  a  credit 
memo  post  card  to  the  store  involved  for  its  use  in  checking 
against  its  other  accounts.     The  entries  are  as  follows: 

In  the  Journal  for  the  entire  day,  taking  totals  for  the  day 
from  the  credit  memo  folio. 

January  2,  1922 


Mdse.  cost $8 .  00 

Mdse.  profit 2 .  00 

To  mdse.  shipments  to  retail  outlets 


$10.00 


For  Ledger  entry,  see  preceding  page. 

The  Daily  Report  from  each  manager,  see  Fig.  39,  brings 
into  the  office  the  complete  story  of  the  happenings  of  the  day. 
The  retail  business  is  on  a  strictly  cash  basis;  hence  sales  are  the 


272 


CHAIN  STORES 


direct  credit  to  merchandise  at  retail  charged  against  the  store's 
Ledger  account. 

The  daily  stores  report  is  in  six  sections.  Section  1  shows 
goods  bought  and  received  by  the  store  manager  and  mark-ups 
and  mark-downs  charged  against  his  store  through  the  central 
office.     Section  2  shows  the  amount  paid  out  for  any  merchandise 


MUST  BE  WRITTEN  iK  INK 

Receiving  Record 

Store  No .  


No.  10460 


Sheet  No. 
Register  No . 


Date. 


Msnagera  are  reqaested  to  enter  all  goods  received  in  the  store  since  previoaa 
record  was  made  out,  which  are  not  on  original   Warehouse-Shipment. 
If  nothing  is  received,   write  "Nothing" and  sign. 


EETAIL  PRICES  CHECKED  BY 
( 1)  Coat  Figured  bj  (  »  )  Cort  Termed  by 


(3)  Betmll Figured  by 


(  4  )  BeUll  Termed  bj 


(  f>)  CoBt  Posted  bj 


(C  )  Retail  Posted  by 


Signature- 


JUanager 


Fig.  39. — Manager's  daily  report.    (Section  1.) 


that  the  manager  has  bought  directly  during  the  day.  Section  3 
shows  the  amount  paid  out  directly  for  expenses  by  the  manager, 
and  Section  4  rebates.  A  summary  of  transactions  is  made  in 
Section  5  and  Section  6  is  a  duplicate  summary  retained  in  the 
store  by  the  manager. 

On  the  assumption  that  Store  No.  35  is  opened  for  business 
on  January  3,  1922,  the  Daily  Stores  Report  should  be  sent  to 
the  office  with  the  amount  of  cash  equal  to  the  day's  sales  less 
deductions.     Arrangements  can  be  made  with  local  banks  in 


SUPERVISION  OF  RETAIL  OUTLETS 


273 


MBBCHANDISB  PAID  FOB 


Store  No. 


UANAOJER  BIGNg  EACH  TRANSACTION 


No.  10460 

Date 

$  Cts.  SISNATCRE 


Writs  ToUl  In  Space  Belov 


TOTAL  TO  BE  ENTERED  ON  CASH  SHEET 


EXPENSES  PAID  FOR 


1  MXNAOEK  SIGNS  EACH  TRANSACTION 

$ 

Cta. 

SIGNATURE             [ 

1 

1 __ 

1 

1  ■Write  Total  In  Space  Below 

1 
1 

j  TOTAt  10  BE  ENTERED  ON  CASH  SHEET 

O.K.                                     1 

I                                                    REBATES 

1           (  Thta  ooTera  aU  moMj  tefonled  or  orercharged,  and  all 

j  MANAGER  SIGNS  EACH  TRANSACTION                        $ 

oTsr-rlsga  on  Cash  Bstlnet  )               1 
CM.                  SIGNATURE             [ 

|_                                                                              ^ 

j" 

[  Writs  ToUl  in  Space  Below 

[  TOTAL  TO  BE  ENTERED  ON  CASH  SHEET 

O.K.                                        ] 

Superintendent  slgnt  after  baring  examined  and  approTsd  all  lie 

me  In  epaoeS  a1)ore                ' 

0.  K./or  all  items  above 

Supt      I 
1 

Fia.  39. — Manager's  daily  report  (Conlinued). 
(Sections  2,  3,  and  4.) 


18 


274 


CHAIN  STORES 


CASH  SHEET 

Pot  fSUs  of  the  same  denomination  together  and  face  up 
EEPORT  MUST  BE  WRITTEN  IX  INK 


No.  10460 


MANAGEB'S  COPY 
EEMEHBEB 

Store  So  and  Date  Must 
be  entered  in  4  (four) 
places. 

No.  10460 


Cash  £ncl:ifled  Herewith 


Total  MerchaadJBe  Paid 


Total  Expenses  Paid 


J    Total  Receipts  for  to-daj 

I 

•    BalTage  Slip  Amount 


'    Total  Rebates 


PieTioua  Statement 


j    I0-DAV8  8TAIBMEM 

I    To  be  entered  on  neit  Cash  Sheet 


Misc. 
Total 


Exps. 
ToUl 


Previous 
Statement 


To-daj's 
Statement 


To  be  entered  on  next  Cash  Sheet 


Manager 


FIGUEING  OF  BEGISTER 
To  be  entered  bj  Eiiperintendect 


{    Begister  Statement- 


Manager's  Statement 

Difference  _ 
CaabonUind- 


Store  Ifo. 

MANAGEB 
Becd  the  Sheet 
CarefoUy 

FILL  rr  OUT 

CAEEFCLLT 


Over  or  Stort- 


Fig.  39. 


-Manager's  daily  report  (Continued). 
(Sections  5  and  6.) 


SUPERVISION  OF  RETAIL  OUTLETS 


275 


certain  suburbs  to  collect  the  money  from  retail  stores  and 
place  it  on  deposit.  The  total  amount  of  cash  sales  is  credited 
to  the  stores  merchandise  ledger  account  (see  cash  receipts). 
The  report  is  received  in  the  office  by  the  bookkeeper  who  checks 
the  managers,  entries,  counts  the  cash,  checks  for  mark-up  and 
mark-down  items  on  Section  1,  which  he  detaches  and  turns 
over  to  the  clerks  for  figuring,  making  at  the  same  time  entries 
in  the  cost  column  for  merchandise  items  paid  for  by  store 
manager.     This  prevents  the  control  merchandise  account  from 

CASH  RECEIPTS 


DATE 

DESCRIPTION 

CREDITS 

DEBITS 

\/ 

CASH- 
SALES 
RETAIL 
STORES 

SUNDRIES 

HOSE 
PUPCHAEES 

OrHtcT 
RETAILS 
(XKNSES 

REBATES 

SUNDRIES    NET  CASH 

1/ 

v' 

V 

V^ 

V 

JAN.  > 

•TORE^SS 

se 

75 

1 

?5 

i»: 

t 

-.0 

» 

ti 

00 

CONTROL    RISK 
TOTALS    FOR    JAN.3 

leg 

te 

75 

_ 

:! 

75 

^ 

1 

1_ 

40 

25 

0* 

Fig.  40. — Cash  receipts  book. 

being  charged  twice  for  items  paid  for  by  cash  by  the  store 
manager. 

Section  I  now  becomes  a  regular  store  order  and  goes  into 
the  folio  binder  for  the  day's  business  under  direct  shipment. 
It  is  given  a  folio  number  and  is  made  ready  for  posting  in  the 
usual  way.  Later,  when  invoices  arrive  from  the  firms  who  have 
delivered  direct  to  the  store,  they  are  checked  against  this 
section  to  ascertain  their  correctness. 

Let  us  suppose  that  all  sections  of  the  daily  report  sheet  have 
been  checked  and  figured,  and  duly  prepared  for  the  bookkeeping 
entries  to  follow: 

1.  Cash  receipts  book,  see  Fig.  40. 

2.  Postings  from  this  cash  receipts  book  are  now  made  as 
follows : 


276 


CHAIN  STORES 


1.  See  If  B  (Page  270)  for  Ledger  Page  on  Store  No.  35. 

2.  Expense  postings. 


Control — Direct  Retail  Store  Expense 

P.  400 

Date      1                1               1                 1     Date    |               |               | 

Jan.  3      1     c-61      j                |     1.00     |                 |               | 

Store  No.  35     Direct  Expense 

P.  435 

Date 

1     Date     1               1 

Jan.  3 

c-61 

1.00 

1 

Three  other  control  accounts  should  be  filled  in; 


Cash  Sales  of  Retail  Outlets 

P.  100 

Date                    1                   Date                     |                 |                 | 

:        11-3   1 

c-61 

1     Sales 

1  $26.75  1 

Mdse.  Purchases  by  Cash  Direct  Stores                                             P.  300 

Date      II                                    Date    |               i               | 

1-3        1      c-61      1                '       .75      1                  '               \               1 

Cash 

P.  40 

Date      1 

1 

Date 

1 

1-3 

c-61 

1  $25.00 

1 
1 

The  next  step  in  the  accounting  procedure  is  the  use  of  the 
periodic  inventory  for  the  retail  stores,  see  Fig.  41.  The  super- 
intendent and  his  assistants  drop  in  at  a  store  without  warning 
and  take  a  physical  inventory.  This  is  then  sent  to  the  central 
office  and  figured  at  retail  by  the  clerks.  When  figured  it  is 
turned  over  to  the  bookkeeper  for  entry  on  the  stores  account. 
If  all  figuring  were  perfectly  accurate  and  no  dishonesty  or 
mistakes  occurred  on  the  part  of  store  managers,  the  inventory 
amount  should  correspond  to  the  balance  on  this  store  account. 

In  practice  of  course,  this  never  actually  occurs.  Journal 
entries  must  be  made  to  equalize  differences  between  book  retail 
inventories  and  physical  retail  inventories. 


SUPERVISION  OF  RETAIL  OUTLETS 


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CHAIN  STORES 


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SUPERVISION  OF  RETAIL  OUTLETS  279 

Let  us  assume  that  on  the  morning  of  January  4,  before  an>' 
retail  sales  are  made,  an  inventory  of  Store  35  is  taken.  When 
figured  this  inventory  amounts  to  $67.65.  The  bookkeeper 
would  then  put  the  inventory  sheet  in  a  permanent  file,  giving  it  a 
number.  This,  then,  becomes  the  voucher  for  the  subsequent 
entry  on  the  books  on  Ledger  Page  142  (See  IfB).  This  being 
the  ideal  case,  the  book  balance  and  the  physical  inventory 
agree. 

If  now  the  management  wants  to  know  the  profit  on  the  busi- 
ness of  Store  No.  35,  it  can  get  a  very  close  estimate  by  taking 
the  difference  between  the  Mem.  debit  and  credit  columns  for 
profit  on  the  Stores  Ledger  page,  and  getting  the  percentage  of 
this  figure  to  the  net  total  merchandise  charges  for  the  month. 
This  will  give  the  percentage  of  gross  profit  on  sales  for  the 
month. 

After  the  store  has  been  running  for  some  time,  it  will  be 
found  that  physical  inventories  from  month  to  month  are  approxi- 
mately the  same.  For  this  reason  the  percentage  of  gross  profit 
or  net  shipments  per  store  per  month  is  substantially  accurate 
for  the  gross  profit  on  net  retail  sales. 

In  order  to  arrive  at  the  net  direct  retail  revenue  per  store  per 
month,  the  direct  store  expense  account  is  deducted  from  the 
amount  of  gross  profit  (arrived  at  as  above).  Similarly,  to  arrive 
at  the  cost  value  of  the  retail  stores  inventory  in  making  up 
monthly  reports  of  condition  a  very  close  approximation  can 
be  had  by  deducting  the  same  percentage  of  gross  profit  from 
the  retail  value  of  the  inventory  as  figured. 

The  profit  on  shipments  of  merchandise  to  the  retail  stores 
for  the  business  as  a  whole  can  be  taken  as  the  gross  profit 
for  the  entire  chain,  thus  very  largely  disregarding  the  retail 
inventories.  But  it  will  be  found,  as  stated  above,  that  after 
retail  outlets  are  once  established,  the  total  retail  store  inven- 
tories for  the  entire  organization  are,  in  the  aggregate,  about 
the  same,  from  month  to  month.  From  control  accounts, 
therefore,  the  monthly  merchandise  statement  for  the  business 
can  be  made  up  with  accuracy  without  considering  the  retail 
inventories. 

The  result  would  be  for  a  chain,  such  as  we  have  been  describ- 
ing, as  follows: 


280  CHAIN  STORES 

Retail  value,  shipments  of  mdse.  to  retail  outlets 

Cost 

Gross  profits  on 

Retail  store  expense  (direct) 

Net  retail  revenue 

Warehouse 

Office  and  managemeat 

Fixed  charges 

Misc.  expenses 

Total  overhead  expense  carried  by  retail  outlets 

Net  profit  for  the  company  on  shipments  to  retail 

outlets 

Sales  direct  from  warehouse' 

Cost  on  sales  from  warehouse 

Net  profit  on  sales  direct  from  v/arehouse 

Aggregate  earnings  of  the  company 

'  Since  wholesaling  is  not  a  regular  business  of  the  firm,  its  profits  are 
treated  simply  as  an  additional  revenue  without  bearing  an  allocation  of 
general  overhead  burden.  This  is  logical  because  so  little  expense  is  involved 
in  making  these  direct  sales. 

Conclusions. — This  chapter  considers  the  retail  store  solely 
from  the  point  of  view  of  the  central  management.  From  this 
point  of  view,  therefore,  the  branch  store  is  like  a  private  soldier 
in  the  army.  It  must  be  taken  care  of,  its  wants  must  be  admin- 
istered to,  and,  like  the  soldier,  it  must  submit  to  discipline. 

The  problem,  as  it  presents  itself  to  the  store  manager  was 
discussed  in  a  previous  chapter.  Here,  the  sole  purpose  is  to 
make  clear  the  routine  of  supervision  exercised  by  the  central 
office  in  two  ways :  By  personal  inspection  and  by  daily  and  other 
reports.  If  the  process  seems  long  and  unduly  complicated,  it 
must  be  remembered  that  this  system  of  accounting  must  serve 
as  eyes  and  ears  to  the  chief  executive.  A  store  to  him  is  not  a 
petsodality,  it  is  a  link  in  a  chain,  and  he  wants  to  know  whether 
it  is  a  strong  link  or  a  weak  one. 

It  is  not  claimed  that  the  system  for  policing  and  accounting 
supervision  outlined  in  this  chapter  is  the  best  or  even  better 
than  others  which  have  been  developed.  But  to  the  small 
chain  proprietor,  or  any  retail  store  owner  who  desires  to  branch 
out  with  other  retail  outlets,  this  chapter  should  give  some  very 
definite  ideas. 


CHAPTER  XVIII 
CENTRALIZING  EXECUTIVE  CONTROL 

Outline 

Information  needed  by  executive. 

1.  Concerning  purchasing  and  warehousing. 

(a)  The  stock  of  merchandise. 

1.  Adequate  supply. 

2.  Items  short. 

(b)  Condition  of  warehouse  inventory  and  merchandise  account. 

2.  Concerning  central  offices. 

(a)  Accuracy  and  up-to-dateness  of  accounting  statistics. 

(b)  BilUng  clerk  routine. 

3.  Concerning  retail  outlets. 

(a)  Cash  sales  of  each  store. 

(b)  Warehouse  shipments  to  each  store. 

(c)  Profit  shown  by  each  store. 

(d)  Character  of  orders  from  each  store. 

(e)  Condition  of  retail  inventories. 
Characteristics  of  executive  reports. 

1.  Brief. 

(a)  Material  concentrated,  if  possible,  on  one  page. 

2.  Up-to-date. 

(a)  Preferably  for  preceding  day. 

1.  To  catch  trouble  at  its  inception. 
The  daily  executive  report. 

1.  Cash  sales. 

2.  Daily  cash  balance  in  banks. 

3.  Net  operations  retail,  cost,  and  profit. 

4.  Shortage  report. 

5.  Routine  necessary  to  follow  to  get  information. 
Weekly  executive  report. 

1.  Commonly  retail  cash  sales  report. 

(a)  Comparison  of  sales  this  week  with  same  week  last  year. 

(b)  Total  for  month  this  year  and  last. 

2.  Connecting  link  between  daily  and  monthly  reports. 

(a)  Indicate  course  of  turnover  and  sales. 
Monthly  executive  report. 

1.  Compiled  almost  entirely  from  books  of  account. 

2.  Control  account  for 

281 


282  CHAIN  STORES 

(a)  Direct  retail  store  expense. 

(b)  Indirect  retail  store  expense. 

3.  Report  gives  statement  of  condition  for  use  in 
(a)  Administration. 
(6)   Correction. 

(c)  Planning. 
Comparison  reports. 

1.  Formulated  at  specific  periods. 

2.  Compare  sales,  profits,  expenses,  etc. 
Annual  report. 

1.  Contains 

(a)  Balance  sheet. 
(6)   Income  account. 
(c)   Expense  statement. 

2.  Serves  as  final  link  in  executive  control. 


CHAPTER  XVIII 
CENTRALIZING  EXECUTIVE  CONTROL 

By  John  S.  Fleek 

It  is  necessary  to  coordinate  and  combine  all  the  separate 
activities  and  functions  of  the  chain.  The  executive  cannot  be 
bothered  with  detail.  He  will  not  gain  the  benefits  of  these 
methods  of  better  administration  unless  the  information  collected 


EXECUT!  VE 


1 
Buyer 

Ware- 
housing 

Purchasing 

1            1 

1            1 

Stock 
Keeping 

Stock 
Records 

Purchast 
Orders 

Mdse. 
Price 
Control 

1 

Figuring  a 
Approving 
Invoices 

Cost  Record 
Book 

Office  Manager 


Account- 
ing 


Retail  Stores Supt". 

Retail 
Stores 
Selling 

Inven- 
tories 

Policing  & 
Enforcing 
Instructions 

Ware- 
house 
Acc'ng. 


Retail 
Acc'ng. 


Fig.  42. — Route  of  statistical  information  for  executive. 

at  various  points  is  concentrated  at  one  place,  in  approved 
reports  and  at  specified  times. 

It  is  true  that  personal  foresight  at  offices,  warehouses,  and 
branches  cannot  be  dispensed  with  by  a  mere  impersonal  substi- 
tution of  routine  methods.  But,  in  order  that  the  chief  executive 
may  exert  his  force  at  the  right  time  and  place,  such  a  routine 
collection  of  data  in  the  form  of  reports  is  almost  necessary. 

Sources  of  information  for  necesary  reports  for  the  executive 
come  ordinarily  through  three  channels,  the  buyer,  the  office 
manager,  and  the  superintendent  of  retail  stores.     These  offices 

283 


284  CHAIN  STORES 

may,  in  some  chains,  be  divided  up  or  given  different  terms-, 
but  the  idea  remains  the  same.  The  executive  must  have 
information  obtained  from  purchases  and  inventories,  finance 
and  accounting,  and  retail  sales  by  branch  stores.  Figure  42 
shows  the  progress  of  information  and  how  definitely  the  route 
for  each  separate  item  of  statistical  data  can  be  traced  from  the 
bottom  of  the  organization  to  the  top. 

What  Information  to  Get. — The  information  for  executive 
consumption  which  it  is  advisable  and  easy  to  compile  appears 
under  the  following  heads: 

I.  Warehousing  and  purchasing. 

1.  Is  the  stock  of  merchandise  being  kept  up? 

2.  If  not,  what  items  are  "going  short"  on  orders? 

3.  What  is  the  condition  of  the  warehouse  merchandise  account,  ware- 
house inventory,  etc.? 

II.  Central  offices. 

1.  Are  the  bill  clerks  keeping  the  work  up-to-date? 

2.  Is  the  accounting  department  keeping  work  up-to-date? 
III.  Retail. 

1.  What  is  the  standing  of  each  store  in  cash  sales? 

2.  What  is  each  store  doing  in  warehouse  shipments? 

3.  What  profit  is  each  store  making? 

4.  What  number  of  orders  are  coming  back  from  each  store? 

5.  Are  profits  large  enough  to  carry  overhead? 

6.  What  is  the  condition  of  retail  inventories? 

Executive  daily  reports  should,  in  general,  concentrate  all 
essential  data  on  not  more  than  one  page.  Such  reports,  when 
handed  to  the  executive,  give  him  a  convenient  and  portable 
brief  of  the  condition  of  his  business  in  all  its  ramifications. 
Moreover,  a  report,  to  be  really  effective,  must  be  up  to  the 
minute  in  the  information  it  contains.  It  should  readily  reveal 
any  mal-administration.  It  should  pave  the  way  for  future 
plans.  For  this  reason,  if  a  daily  report  arrives  four  or  five  days 
late,  much  of  its  constructive  and  corrective  force  is  lost;  for  the 
evil  it  presents  and  brings  out  or  emphasizes  for  correction  has 
probably  by  that  time  ceased  to  be  so  obtrusively  evident. 

Daily  and  weekly  reports,  therefore,  should  come  to  the  execu- 
tive's desk  on  the  day  following  that  for  which  the  figures  are 
entered.  Monthly  and  other  periodic  reports  should  be  pre- 
sented within  five  or  six  days  of  the  end  of  the  month.     Annual 


CENTRALIZING  EXECUTIVE  CONTROL 


285 


reports  naturally  take  longer  to  compile,  but  certainly  should  l)c 
completed  during  the  30  days  following  the  end  of  the  fiscal 
year. 

The  Daily  Executive  Report. — The  daily  executive  report, 
appearing  on  the  chief  executive's  desk  by  the  forenoon  of  the  day 
following  that  of  the  report,  gives  the  brief  outline  of  the  course 
of  business  during  the  previous  day.  The  executive  not  only 
gets  a  line  on  his  retail  stores,  the  buying,  the  accounting  depart- 
ment from  the  daily  reports,  but  he  knows  also  that  his  office 
force  is  keeping  its  costing  and  pricing,  expending  and  billing 
up-to-date.  Otherwise  the  figures  under  "shipments,"  and 
"direct  credits"  could  not  be  entered. 


Financial 
Books 


Ban 
Book 


Store  Managers 
Daily  Report 

Of 
Sales,  Rebates, 
Expenses,  Etc. 


Credit  Memos 

On 
Returned  Goods 


Cosh  Sales 


Store  Managers 

Report  Direct 

Shipments 


DAILY 

EXECUTIVE 

REPORT 


Net  Operations, 
Retail^Cost, 
Profit 


Cash  Balance 


Shortage 
Report 


Regular 

Shipment 

Orders. 


Fig.  43. — Process  of  making  up  daily  executive  report. 


Figure  43  shows  the  procedure  required  in  obtaining  the 
information  for  the  daily  executive  report  as  it  is  made  up  from 
the  various  other  detailed  reports.  It  shows  how  the  daily 
cash  balance  is  found  by  consulting  the  bank  book  and  the 
financial  books;  how  cash  sales  are  taken  off  the  daily  report  of 
the  store  managers,  etc.  By  studying  this  diagram,  the  appar- 
ently intricate  processes  of  coordinating  and  concentrating 
accounts  become  far  simpler. 

Figure  44  shows  one  form  of  daily  executive  report.  This 
form  is  made  up  as  follows:  As  soon  as  the  warehouse  shipments 
on  regular  retail  store  order  blanks,  the  direct  shipments  from 
store  managers'  reports,  and  the  credit  memos  are  figured  and 
extended,  the  order  clerks  enter  the  totals  for  each  store  in  the 
appropriate  columns  and  give  the  algebraic  sum    (warehouse 


286 


CHAIN  STORES 


shipments  plus  direct  minus  credits)  for  the  net  operations  of 
the  day. 

One  clerk  then  goes  through  the  warehouse  shipment  order 






nAV                                                                  1 

LXttUllVt   KLh-UKI                                                                                                            1 

STORE 

PO.OUT 

TOTAL 
0A6H 
SALES 

SHIPMENTS 

DIRECT   CREDITS 

NET   OPERATIONS             1 

IXP. 

.M 

COST 

RLTAIL 

COST 

retailI 

COST 

RETAIL 

COST 

RETAIL 

PROFIT 

1 

2 
3 

4 

29 
30 

TOTALS 

.... 

L 

Fig.  44. — Daily  executive  report  form. 


TIAV 

hatf. 

EXECUTIVE    REPORT 

DAILY    CASH    STATEMENT 

FOR  BANKS 

NAT'L 

UNIOX 

CITV 

lOTAL  BANK^ 

CASU 

OLDBAL 

OLD  BAL 

DEPOSIT 

STORE 
RECEIPTS 

TOTAL 

OTHER 
RECEIPTS 

CHECKS 

TOTAL 

KEW  BAL. 

PD.  MD8E. 

PD.  EXP. 

PD.  OTIIEK 

NEW  BAL. 

INITIALS 

SHOETAGK 

Fig.  45. — Daily  cash  statement. 

blanks  and  hsts,  under  shortage,  on  the  reverse  side  of  the  report, 
the  articles  (quantity  and  retail  value)  which  the  shipping  clerk 
has  marked  "short"  i.e.  he  has  been  unable  to  fill  the  order 
because  the  articles  asked  for  have  run  out  of  stock. 


CENTRALIZING  EXECUTIVE  CONTROL 


287 


The  clerks  now  turn  the  report  in  to  the  bookkeeper,  who 
enters  the  amount  of  cash  sales  from  the  figures  compiled  from 
the  store  managers'  daily  reports.  Next  he  enters  the  daily 
cash  balance  figures  on  the  reverse  side  of  the  executive  report, 
Fig.  45.  When  the  bookkeeper  has  done  this,  the  report  is  com- 
plete and  ready  for  the  executive.  Entries  on  the  report  are 
initialed  by  the  clerks  making  them.  The  report  can  be  con- 
veniently placed  on  three-ring  binder  paper  and  can  be  kept  for 
permanent  record  by  the  executive  in  such  a  binder. 

Thus  the  executive  has  before  him  daily  in  a  convenient, 
compact  form,  a  summary  of  his  business  and  an  effective  check 


BEPOBT  OF  EETAIL  CASH  SALES 

WEEKLY  FOR  THE  MONTH  OP                                                   lOS 

1 

STORE  NO. 

COMPARISIONS 

WEEKLY  CASH  SALES 

TOTAL 

CASH  SALES 

CURRENT 

MONTH 

THIS 
HONTU 
IN  111?  _ 

QDPTA 
CUBRENT 
MONTH 

-TO- 

-TO- 

-TO- 

-TO- 

-TO- 

-TO- 

1 

% 

i 

1 1 

12 

TOTAL 

WAREHOUSE 

AGGREGATE 
,  .roTAL.  .  . 

Fig.  46. — Weekly  cash  sales  report. 


on  its  functions.  By  means  of  the  shortage  report,  the  buyer 
is  checked;  by  means  of  the  daily  cash  balance,  the  accounting 
department  is  checked,  and  the  retail  outlets  are  checked  by  the 
detailed  information  on  the  first  page  of  the  report. 

The  Weekly  Report. — Chains  vary  widely  in  executive  ac- 
counting control,  not  so  much  in  the  information  desired,  but 
rather  in  the  frequency  with  which  it  is  desired  and  the  complete- 
ness of  the  detail  called  for  on  the  executive  report.  Generally 
it  is  not  considered  necessary  to  include  any  information  on 
weekly  reports  except  that  dealing  with  cash  sales.  If  the  other 
items  are  not  important  enough  to  be  listed  daily,  they  can 
usually  be  put  off  until  the  monthly  report. 

Figure  46  illustrates  a  common  form  of  retail  cash  sales  re- 
port to  be  filled  in  and  submitted  weekly.     It  is  found  convenient 


288  CHAIN  STORES 

to  consolidate  this  weekly  report  on  one  sheet  for  the  current 
month  and  with  the  figures  accumulating  week  by  week.  Figures 
for  current  weeks  are  compiled  direct  from  the  daily  executive 
reports  and  put  on  three-ring  binder  pages  for  the  executive 
control  report  book. 

As  a  guide  and  as  a  comparison,  the  first  column  shows  sales 
for  the  same  month  last  year,  and  the  second  column  the  quota 
or  mark  set  for  the  month  this  year.  The  subsequent  six  columns 
are  for  the  weekly  record  of  sales  and  the  final  column  gives  the 
total  for  the  month. 

The  reason  for  six  columns  is  to  provide  for  such  a  month  as 
October,  1921,  beginning  on  a  Saturday  and  ending  on  a  Monday. 
Weeks  are  taken  as  beginning  when  the  month  begins  and  running 
until  the  next  Saturday  or  until  the  end  of  the  month.  For 
example,  two  of  the  weeks  reported  for  October,  1921,  will 
contain  but  one  business  day.    . 

This  cash  report  gives  the  chief  executive  information  as  to 
the  volume  of  business  his  retail  outlets  are  doing,  in  a  desirable 
form,  and  in  sufficient  detail  to  give  him  the  connecting  link 
between  daily  and  monthly  reports,  which  go  more  minutely  into 
particulars.  These  consolidations  enable  him  to  ascertain  what 
steps  need  to  be  taken  immediately  to  force  more  sales  and  a 
greater  turnover,  at  any  one  point  or  throughout  his  organization. 

The  Monthly  Report. — The  monthly  report  provides  a  com- 
plete analysis  and  statement  of  the  operations  and  conditions  of 
business.  It  gives  an  operating  statement  in  detail;  and  more- 
over combines  all  this  information  in  a  concise  form  on  the  two 
sides  of  a  single  sheet  of  the  same  standard  three-ring  binder  paper 
for  the  executive's  control  report  book.  The  form,  see  Figs. 
47  and  48,  is  almost  self-explanatory,  and  is  compiled  almost 
entirely  from  the  books  of  account,  although  it  is  possible  to 
check  the  daily  and  weekly  reports  against  it. 

The  cash  sales  give  the  needed  comparison  with  profits,  years 
and  quotas,  as  well  as  with  the  volume  of  shipments  appearing 
in  the  columns  to  the  right.  The  inventory  column  serves  to 
show  the  turnover  of  each  store.  Direct  exp)ense  is  seen  on  the 
reverse  side.  Fig.  48,  and  is  that  part  of  the  operating  expense 
which  can  be  chargeable  directly  to  the  individual  store.  It 
is  well  to  keep  this  separate  from  the  other  entries  of  expense 


CENTRALIZING  EXECUTIVE  CONTROL 


289 


or  overhead;  for,  it  might  be  advisable  sometimes  to  maintain 
a  store  that  was  doing  only  a  little  better  than  making  its  direct, 
or  as  they  say  in  railroading,  "out-of-pocket  expense"  and  con- 


KXECHTIVE   REPORT   FOR  MnNTW  HIT 

IB! 

1" 

CASH  SALES 

PBYEICAL 
IMVEMT. 
OKIES 

MEECHANDISE-SHIPMENT-OPEKATXONS 

SALES  roB 
HONTU 
IM  — 

gUOTA 
THIS 
MONTU 

CIBKEMT 
SALES 
NET 

OAIN 
OR 
LOSS 

AT 

RETAIL 

IBOSii  BOOli 
PBOFIT 

DIRECT 
EXPENSE 

DIEECT 
RETAIL 
REVENUE 

JVERBEA 
LLLOCATE 
AT -J 

0    NET  BOOK 
DXJPEKATINC 

We 

HU'T 

AH'T 

« 

>EOFn'    <{ 

1 

t 

"— 

" 

1 ^ 

r 

1 

_ 

11 



]— 

u 

TOTAL 

WAREHOUSE 

AGG.TOTAL 

INCOME  STATEMENT 

BALANCE  SHEET                                                  | 

AOORECtlE  BOOK  PROFIT  .NET 

OFFICE  CASH 

COMMON  STOCK 

DISCOUNTS  EARSED 

BANK  CASH 

PREFERRED  STOCK 

SUNDRY  REVENUES  NET 

ACCT'S  REC'D 

SURPLUS 

WAREHOUSES 

NOTES  REC'D 

UNDIVIDED  PROFIIS 

MARK-UP 

EQUIPMENT 

CURRENT  PROFIT  LOSS 

MARK-DOWN 

STORE  FIXTURES 

ACC'TS  PAYABLE 

CURREiNT  BOOK  PROFIT  AND  LOSS 

WAREHOUSE  FIXTL 

IE8 

NOTES  PAYABLE 

WAREHOUSE  MDSE  BOOK  RECORD 

OFFICE  FIXTURES 

OTHER  LIABILITIES 

INV.BEGINNING  MOKTU 

WAREHOUSE  INT. 

PURCHASES  AT  BILLED  COJT 

RETAIL  STORES  INV 

FREIGHT  ON  PURCHASES 

AT  COST 

TOTAL 

STOCKS  i  BONDS 

LESS  SHIPMENTS  OUT  AT  COST 

OTHER  ASSETS 

BOOK  I.W.  END  OFMOKTU 

SHOETAGE  TOTAL 

SALVAGE  ACCT  FOR  MONTH 

ES 

TOTAL  ASSETS 

TOTAL  LIABILIT] 

U 

Fig.  47. — Monthly  executive  report. 

tributing  a  small  amount  towards  making  the  total  overhead. 
Though  showing  a  net  loss  after  deducting  its  ratio  of  overhead, 
such  a  store  assists  by  increasing  purchasing  power,  or,  perhaps,  by 
initiating  business  for  the  company  in  a  new  and  heavily  competi- 
tive locality. 

Thus,  there  must  ])C  a  control  account  for  direct  retail  store 

19 


290 


CHAIN  STORES 


DETAILED  EXPENSE  STATEMENT,            MONTH  OF 

MONTH 

% 

TO  DATE 

i 

DIRECT  RETAIL  EXPEXSE 

SALARIES,  STOBE  MGRS. 

COMHISSIOXS 

OTHER  CLERK  EXPENSE 

RENT 

MISC.DIRECT  CHARGES 

TOTAL  DIRECT  REIAIL^EXEE.NSE 

OVERHEAD    BURDEN  OR  INDIRECT  EXPENSE 

WAGES  P.ECEIV1XG3A-VDU.NG,  AND  SHIPPING  FORCES 

BOXES  AXD  WRAPHSG 

OUTWARD  EREIGHT  AND  CARTAGE 

TOTAL,  RECVG.HANDL'G,  SHIP'G    EXPENSE 

SALARIES  BUYEBS 

OTHER  BUYING  EXPENSES 

TOTAL  BUYING  EXPENSE 

EXECUTIVES  SALARIES 

OFHCE  8ALARIZ8 

POSTAGE  AND  OFFICE  SUPPLIES 

lELEEHONE  AND  TELEGRAPH 

OTHER  MANAGEMENT  EXPENSES 

TOTALM'GEM'NT  AND  OFFICE  EXENSE8 

INTEREST 

BENT 

HEAT,  LIGHT  AND  POWER 

TAXES 

INSURANCE 

REPAIRS  OF  EQUIPMENT 

DEPRECTATION  OF  EQUIPMENT 

TOTAL  FIXED  CH.UIGE8 

MISCELLANEOUS  EXEENSE8 

WSSES  ET  DEFALCATION 

ADVERTISING 

TOTAL  OVERHEAD  EXPENSE 

TOTAL  AGGREGATE  EX2ENSE 

NET  SHIPMENTS  10  REIAU  OUTLETS 

GROSS  BOOK  PROEIT  ON  ABOVE 

LESS  DIRECT  EETAIL  EXPANSE 

DIRECT  RETAIL  REVENUE 

LESS  OVERHEAD  EXPENSI 

KET  BOOK  RETAIL  OPERATING  PROFIT 

BOOK  PROEIT  ON  WHOLESALE   SALES 

AGGREGATE  BOOK  0EERA31XG  PROEIT  NET- 

Fig.  48. — Monthly  executive  report  (expense  statement). 


CENTRALIZING  EXECUTIVE  CONTROL 


291 


expense  and  one  for  indirect  retail  store  expense.  The  expense 
sections  on  the  reverse  page  of  the  report  give  in  detail  the  figures 
for  direct  and  indirect  expense. 

This  report,   as  made  up,   gives  the  executive  an  accurate 
statement  of  the  situation  each  month  and  is  in  sufficient  detail 


MONTHLY  rOK  THE  YEAR 

COMPARATIVE  NET  BOOK  PROFITS  FROM  RETAIL  OPERATIONS 

STORE    1 

STORE    i 

8TORE^35 

CURRENT 
TOTAL 

LAST  TEAR 
TOTAL 

AMT 

% 

AM-T 

f 

AM-T 

% 

AM-T 

% 

AM'T 

% 

JAK. 

FEB. 

TO  BATE 

_ 

1 -^ 

1 



DEC. 

TOTAL 

LAST  TEAR 

GAIX  OR  LOSi 

Fig.  49. — Monthly  comparison  form  (by  stores). 


YEAR 

COMPARATIVE  RETAIL  CASH  SALES  STATEMENT 

STORE     1 

BI0RE^S5 

CURRENT 
TOTAL  RETAIL 

LAST  TEAR 
TOTAL  RETAIL 

JAN. 

SALES 

INT. 

TURN. 

SALES 

INV. 

TURN. 

SALES 

INV. 

TURN. 

SALES 

XNV. 

TURN. 

FEB. 

TO  DATE 



DEC. 

TOTAL 

LAST  YEAR 

GAIN  OR  LOSS 

Fig.  50. — Comparative  retail  cash  sales  statement. 

to  give  him  adequate  data  for  use  in  administration. 

Figure  49  shows  another  form  of  monthly  report  used  in  cases 
where  the  stock  problem  is  more  complicated  than  in  the  previous 
illustration.  Here  reports  are  made  by  departments,  as  well  as 
by  totals.  This  statement  combines  comparisons  with  the 
actual  figures  for  the  month. 


292  CHAIN  STORES 

Comparative  Statements. — In  many  chain  organizations, 
comparative  statements  are  compiled  at  specified  periods,  some- 
times weekly  as  shown  previously,  and  also  monthly  and  yearly. 
These  statements  may  show  sales,  profits,  expenses  or  other  items 
of  interest  regarding  the  stores  and  their  relative  standing  from 
different  merchandising  aspects.  Figm-e  49  for  example,  shows  a 
form  for  comparing  the  net  book  profit  from  retail  operations  by 
months.  Space,  as  will  be  noted,  is  left  for  reducing  all  figures 
to  percentages,  the  form  which  makes  it  easiest  for  the  execu- 
tives to  grasp  comparisons. 

Figure  50  shows  another  form  for  making  annual  comparison 
of  sales,  inventory,  and  turnover,  of  the  various  stores. 

It  is  apparent  that  figures  such  as  these  are  of  great  importance 
to  executives.  They  enable  them  to  put  a  finger  at  once  on  all 
weak  spots.  If  one  store  falls  ofif  in  sales  while  other  stores 
maintain  a  steady  average,  this  fact  shows  up  at  once  in  the  per- 
centage column.  The  same  is  true  of  profits.  Although  the 
sales  of  two  stores,  in  gross  amounts,  may  come  to  the  same  figure, 
the  net  of  profits  of  one  may  far  outbalance  the  other  and,  again, 
these  records  should  show  clearly  the  reason  for  this  deviation. 

The  Amiual  Report. — Annual  reports  are  similar  to  monthly 
reports.  They  can  well  include  more  detail  and,  of  course,  are 
the  final  figures  for  the  fiscal  period,  being  compiled  after  an  actual 
physical  inventory  of  the  warehouse  stock  fixtures  and  equip- 
ment, with  depreciation  and  losses  charged  off.  Practically  the 
same  form  for  the  annual  report  can  be  used  as  is  used  for  the 
monthly  report. 

The  necessary  forms  are: 

1.  Balance  sheet. 

2.  Income  account. 

3.  Expense  statement. 

The  annual  report  comes  to  the  executive  as  a  final  link  in 
his  system  of  executive  control.  It  also  furnishes  the  ordinary 
medium  by  which  the  results  of  the  year's  operations  are  made 
public  to  stockholders. 

Conclusions. — By  the  means  and  methods  that  have  been 
described,  the  chief  executive  should  be  able  to  put  into  force  an 
efficient  and  intelligent  administration;  for  he  has  first  set  up  the 


CENTRALIZING  EXECUTIVE  CONTROL  293 

proper  methods,  and  the  mechanics  for  doing  the  necessary 
routine;  and  he  has  then  set  up  the  system  of  reports  which 
show  him  they  are  being  carried  out  as  he  has  prescribed. 

Thus  warehousing  and  purchasing  and  the  supervision  of  retail 
outlets  are  coordinated,  and  the  chief  executive,  with  a  consider- 
able degree  of  accurate  knowledge,  can  exert  his  control  and 
directing  force  on  all  parts  of  his  organization  effectively. 


CHAPTER  XIX 

FINANCING  AND  GROWTH 

Outline 
Methods  of  financing. 

1.  New  stores  financed  out  of  profits  from  old  stores. 

2.  New  stores  financed  by  borrowing  money. 

3.  Absorption  of  chains  by  re-organization. 
Principles  of  growth. 

1.  Steady  growth  in  stores  regardless  of  financial  or  business  conditions. 

2.  Steady  increase  in  gross  sales. 

(a)  In  organization. 
(6)   In  individual  stores. 

3.  Constant  widening  of  chain  store  field. 

(a)  In  articles  sold. 

(b)  In  services  rendered. 
Net  profits. 

1.  Do  not  increase  proportionately  with  gross  sales. 

(a)  Large  turnover  allows  smaller  margin  of  profit. 
2  Dividends  more  stable  than  in  other  classes  of  industrial  stocks. 
3.  Bonus  system  allowing  adjustment  of  wages  to  sales. 
Capitalization. 
1.  Ordinary  form. 

(a)  Issue  of  7  per  cent,  preferred  stock. 

(b)  Issue  of  no-par  value  common  stock, 
(f)    Very  seldom  a  bond  issue. 

1.  Provision  for  retiring  with  sinking  fund. 
Normal  growth  of  chain  organization. 

1.  Single  store. 

2.  Slow  growth  store  by  store. 

(a)  Gradual  evolvement  of  organization. 
(6)  Formation  of  operating  routine. 

3.  More  rapid  growth. 

(a)  Caused  by 

1.  Increased  economies. 

(a)  In  purchasing. 
(6)   Merchandising. 

2.  Increased  profits. 

(a)  More  stores. 

(6)  Better  operated  stores. 

3.  Cumulative  effect  of  territorial  expansion. 

294 


CHAIN  STORE  FINANCING  AND  GROWTH  295 

4.  Combination  and  stock  increase. 
Distribution  of  stock. 

1  Old  policy  of  keeping  control  in  small  number  of  stockholders. 

2.  New  policy  of  selling  stock  to  customers. 
Methods  of  selling  stock. 

1.  Through  underwriting  house. 

(a)  Necessitates  size  and  distribution  on  part  of  chain. 

2.  Through  local  broker  or  direct  sales  or  both. 
Financial  advertising. 

1.  Should  show  present  prosperity. 

(a)  Net  sales. 

(6)   Safety. 

(c)    Earnings  and  dividends. 

2.  Statement  of  future  prospects. 

(o)  Reasons  for  wisdom  of  purchase. 


CHAPTER  XIX 
CHAIN  STORE  FINANCING  AND  GROWTH 

One  of  the  remarkable  aspects  of  chain  store  development  is 
the  smoothness  with  which  all  financial  difficulties  have  been 
surmounted.  The  reason  is  not  far  to  seek.  Most  chain  systems 
have  done  their  own  financing  out  of  profits.  It  has  rarely  been 
necessary  to  go  to  Wall  Street  for  funds. 

There  are  actually  three  ways  in  which  a  chain  can  finance 
its  natural  expansion: 

1.  Finance  new  stores  out  of  own  profits. 

2.  Finance  by  borrowing  money. 

3.  Absorption  of  other  chains  by  reorganization  and  exchange  of  stock, 
or  some  other  means  not  requiring  new  capital. 

A  chain  of  retail  stores  is  unlike  a  manufacturing  business, 
in  that  the  chain  rarely  has  an  inventory  over  its  actual  and 
immediate  needs.  Thus,  its  expansion  in  times  of  depression  is 
in  some  cases  as  rapid,  and  even  more  rapid,  than  it  is  in  times  of 
great  business  activity.  Since  the  chains  deal  in  staple  articles, 
much  more  so  than  the  department  stores  and  the  mail  order 
houses,  their  earnings  do  not  show  such  fluctuations.  They  have 
financial  stability  in  that  they  can  be  counted  on  to  earn  a  profit 
regardless  of  general  business  conditions  throughout  the  country. 

The  above  statements  are  subject  to  some  qualification.  In 
1920,  for  example,  one  of  the  large  dry  goods  chains  carried  so 
large  an  inventory  as  to  wipe  out  its  entire  profits  on  $52,800,000 
of  business,  showing  a  net  loss  of  $300,000.  Its  policy  of  expan- 
sion was  curtailed,  and  it  was  able  to  regain  its  position  in  1921. 

In  brief,  although  it  is  inadvisable  to  over-expand  in  the  face  of 
a  period  of  depression,  still  the  chain  stores,  as  a  rule,  are  better 
equipped  to  weather  such  storms  than  are  most  businesses. 

In  passing,  it  is  noteworthy  that  times  of  depression  are  op- 
portune ones  for  obtaining  lease  holds. 

The  question  of  finance  is  inextricably  connected  with  the 

296 


CHAIN  STORE  FINANCING  AND  GROWTH  297 

progress  of  the  various  chains.  To  understand  the  problems 
of  financing  it  is  necessary  to  review  the  progress  made  by  the 
chains  during  the  last  few  j^ears  and  the  financial  principles 
along  which  that  progress  has  been  conducted.  The  larger 
chains  only  are  considered  for  the  sake  of  convenience,  and  also 
because  they  are  better  known  to  the  public. 

The  Principles  of  Chain  Store  Growth. — There  are  certain 
phenomena  observable  about  the  growth  of  chain  stores: 

1.  Growth  has  been  steady  in  spite  of  financial  or  business 
conditions. 

2.  Gross  sales  have  increased  in  volume  in  spite  of  prosperity 
or  depression. 

3.  There  has  been  a  constant  widening  of  the  articles  and 
services  marketed  through  chains  of  retail  stores. 

4.  Although  methods  of  organization  have  been  different, 
those  chains  only  have  succeeded  which  have  remained  true  to 
the  fundamental  principles  of  chain  store  operation,  as  outlined 
previously  in  this  book. 

The  chain  store  organizations  and  the  two  large  mail  order 
houses  are  the  only  retail  agencies  which  have  attained  great 
size  and  importance  in  the  financial  world.  The  mail  order 
houses  depend  mainly  on  rural  buying;  the  chain  stores  on  urban. 

No  one  has  been  able  to  estimate,  even  with  approximate 
exactness,  the  number  of  chains  in  the  United  States  or  the 
number  of  stores  operated  by  these  chains.  Only  in  a  few  lines 
has  there  been  any  exact  census  made,  such  as  the  drug  chains. 
In  the  grocery  field  one  concern  is  spending  many  thousand 
dollars  in  making  a  census  of  the  grocery  field.  And,  as  the 
number  of  chains  is  increasing  rapidly  every  year,  the  attempt 
to  enumerate  them  is  hardly  worth  while,  lacking  definite  figures. 
It  suffices  to  say  that  the  chain  store  in  the  last  seven  years  has 
made  enormous  strides,  not  only  in  the  number  of  new  chains,  but 
more  remarkably  in  the  increased  volume  of  sales  in  the  old 
chains.  As  an  example,  let  us  consider  the  larger  chains  in  the 
United  States  and  compare  their  sales  over  the  last  seven  years: 

In  each  case  the  gross  sales  have  far  more  than  doubled.  In 
the  case  of  the  Penney  chain  they  have  increased  tenfold.  The 
Kroger  Grocery  &  Baking  Company  has  increased  its  sales 
fourfold. 


298 


CHAIN  STORES 


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These  ten  chains,  measured  by 
the  volume  of  their  sales,  are 
the  largest  in  the  United  States. 
The  first  four  in  the  list  operate 
more  than  one  thousand  stores 
each.  Four  of  the  ten  are  grocery 
chains,  three  five  and  ten  cent  store 
chains,  and  two  dry  goods  chains. 

What  is  happening  in  the  case 
of  the  large  chains  whose  sales 
reports  are  shown  here  is  hap- 
pening in  the  case  of  thousands 
of  small  chains  whose  member 
stores  are  yet  too  few  to  mount  up 
to  large  proportions  of  gross  sales. 

Earnings  and  Dividends. — With 
few  exceptions,  chain  stores  have 
been  able  to  earn  dividends,  not 
only  upon  their  preferred  stock 
but  also  upon  the  common.  The 
ordinary  form  of  capitalization 
seems  to  be  an  issue  of  7  per 
cent,  preferred  stock  and  a  certain 
number  of  shares  of  common,  no 
par  value.  Some  chains  have  sold 
their  stock  at  $10  a  share  to  secure 
wider  distribution  among  the 
public. 

Few  chains  have  any  bonded 
indebtedness  and  net  profits  can 
be  applied  almost  entirely  to  meet- 
ing demands  of  stockholders, 
although  it  must  be  remembered 
that  a  chain  company  needs  a 
certain  amount  of  capital  for  new- 
enterprises  during  the  year  and 
this  capital  is  taken  out  of  earn- 
ings rather  than  borrowed,  and 
the  amount  added  to  the  funded 
debt. 


CHAIN  STORE  FINANCING  AND  GROWTH 


299 


The  following  tabulation  shows  a  comparison  of  net  profits 
earned  on  the  common  stock  of  the  two  large  mail  order  com- 
panies and  certain  of  the  chain  store  companies.  The  comparison 
is  taken  for  1918,  1919,  and  1920,  that  is,  during  the  period  of 
rising  prices  and  falling  prices. 

Earnings  on  Common  Stock  (Last  Three  Figures  Omitted) 


1920 


Net 

for 

com. 


Net 

per 

share 


1919 


1918 


Net 

for 

com. 


Net 

per 

share 


Net        Net 

for         per 

com.       share 


Sears-Roebuck 

Montgomery  Ward. 
F.  W.  Woolworth.. 

S.  S.  Kresge 

S.  H.  Kress 

McCrory  Stores .... 

J.  C.  Penney 

Jones  Bros.  Tea .... 


$11,187 

t9,468 

8,918 

2,614 

601 

512 

t560 

135 


$13.07 


13.87 

26.14 

5.01 

10.24 


1.35 


$18,331 
3,652 
8,554 
2,140 
1,698 

335 
1,805 

215 


$26.03 

10.53 

17.11 

21.40 

14.15 

6.69 

114.15 

2.15 


$12,145 

3,863 

4,982 

1,561 

774 

22^ 

696 

101 


$17.63 
12.97 

9.96 
15.61 

6.45 

4.48 
44.00 

1.01 


fDeficit. 


Profits  on  common  for  the  Sears-Roebuck  Company  were 
practically  cut  in  two  in  1920,  while  Montgomery  Ward  showed 
an  actual  deficit.  Among  the  five-  and  ten-cent  stores,  Kresge  and 
McCrory  showed  big  increases  in  net  each  year.  Woolworth, 
because  of  its  adherence  to  a  policy  of  selling  at  five  and  ten  cents 
showed  a  slight  decrease  in  1920,  but  the  fall  was  in  no  way 
proportionate  to  that  of  the  mail  order  houses.  In  addition, 
the  company  opened  thirty  new  stores  during  the  year.  Earnings 
on  the  common  stock  of  the  Kress  Company  showed  a  sharp 
falling  off  but  still  showed  enough  to  cover  the  four  per  cent, 
common  dividend  requirements. 

Figure  51  shows  yearly  fluctuation  in  market  value  of  the 
common  stock  of  the  Kresge  Company  from  1912.  Note  the 
great  stability  during  the  business  depression  of  1920  and  1921. 

Chain  store  earnings  and  dividends  show  the  following  trends: 

1.  Net  profits  do  not  increase  proportionately  with  increase 
in  total  sales.     This  is  natural  since  a  larger  turnover  of  goods 


300 


CHAIN  STORES 


allows  the  chain  to  operate  on  smaller  margin  of  profit.  In 
other  words,  the  more  sales  are  made,  the  less  money  it  is  neces- 
sary to  make  on  each  purchase. 

2.  Dividends  paid  on  chain  store  stocks  do  not  show  that 
general  tendency  to  fluctuate  in  times  of  prosperity  and  depres- 
sion which  is  evidenced  by  other  industrial  stocks.  That  is, 
the  business  of  retailing  on  a  large  scale  is  more  generally 
profitable  than  a  manufacturing  business. 

3.  The  ordinary  form  of  capitalization  is  an  issue  of  seven 


1f> 

1          1 

■ 

■ 

1          1 

YcJrIj-  fluctuationt 

in  market  value  of 

Kresge  Common  Stock 

1 9 1 2  to  date 

/ 

JS 

/ 

/ 

70 

^' 

^ 

y 

> 

^ 

IS 

/ 

"*>-^ 

/ 

^'v 

X 

~  ^^ 

^ 

/ 

in 

/ 

^ 

_<• 

s 

,-— " 

1 

1912   1913   1914    1915    1916    1917   1918    1919    1920   1921 

Maximuin  $4,475,000  $4,100,000  $5,250,000  $17,000,000  $15,750,000  $13,123,000  $I0.500.0O0$17,0OO.000J15.50O.00O 
Minimum  2.250.000  2,900.000  4,050.000  4.950.000  10,000.000  6.000.000  6.950.000  10.612.500  12,000,000 
Theoretical      4,300,000  6,100,000  8,500,000    9.700.000    16.900,000    11,300.000    13.000,000  17,800,000  21,800,000  $30,000,000  (Est) 

Fig.  51. — Growth  in  value  of  common  stock    of  S.  S.    Kresge   Company.     (Merrill, 

Lynch  &  Co.) 


per  cent,  preferred  stock  followed  by  an  issue  of  no  par  value 
common  stock.  Few  chains  have  any  bond  issues  outstanding, 
and  if  there  are  bonds,  the  general  policy  is  to  establish  a  sinking 
fund  for  their  redemption  as  soon  as  possible. 

4.  The  bonus  system  of  recompensing  employees  allows  a 
very  rapid  reduction  in  labor  expenditures  whenever  sales  fall 
off  for  any  reason  whatsoever.  In  other  lines  of  business  this 
cannot  be  accomplished  either  so  rapidly,  or  so  easily. 

The  Kresge  Company. — To  illustrate  better  this  question  of 
chain  store  financing  the  S.  S.  Kresge  Co.  has  been  taken  as  an 
example.  The  company  started  in  business  in  1897  with  one 
store.     In  1921  it  had  198  stores,  as  far  west  as  Lincoln,  Neb- 


CHAIN  STORE  FINANCING  AND  GROWTH 


301 


raska,  and  as  far  south  as  Norfolk,  Virginia.  Sales,  which  were 
only  $5,116,099  in  1909  increased  to  $55,859,011  in  1921.  The 
margin  of  net  profit  has  kept  between  5.94  per  cent,  and  8.23 
per  cent.  The  company  has  made  a  phenomenal  showing  in 
net  profits  per  store.  In  nine  years  it  increased  more  than 
147  per  cent.,  from  $7872  in  1912  to  $19,463  in  1920,  see  Fig.  52. 
Average  sales  have  advanced  123  per  cent,  or  from  $121,476  in 
1912  to  $271,139  in  1920. 

The  company  has  followed  a  poUcy  of  financing  its  expansion 
almost  entirely  out  of  earnings.  During  the  development  of  the 
Kresge  chain,  as  with  all  chain  stores  following  a  policy  of  starting 
new  stores,  the  old  stores  have  to  carry  the  burden.     Thus,  the 


Fig.  52. — Gross  sales,  profits,  and  earnings  on  common  stock  of  S.  S.  Kresge  Company. 

(Financial  World.) 


reported  profits  on  growing  chains  rarely  show  exactly  how  great 
an  earning  capacity  the  chain  is  capable  of. 

The  company  had  one  store  in  1897,  42  in  1909,  84  in  1912,  157 
in  1916,  and  189  in  1920.  In  1921,  this  number  was  raised  to  198. 
More  than  80  per  cent,  of  the  capital  stock  has  come  from  rein- 
vestment of  surplus  earnings.  In  1916,  when  the  company  was 
reincorporated,  the  common  stock  was  doubled  and  par  value 
changed  from  $100  to  $10.  In  1917,  the  stock  had  so  increased 
in  value  that  part  was  changed  back  from  $10  to  $100  again. 
In  June,  1920,  common  stock  was  increased  to  $20,000,000 
and  a  note  issue  of  $3,000,000  sold.  It  is  interesting  to  observe 
that  profits  per  share  of  common  have  not  decreased  because  of 
increasing  the  amount  of  common  stock  outstanding.  They 
have,  on  the  contrary,  kept  up  at  a  steady  rate  of  increase 
(with  the  exception  of  1921). 

This  account  of  the  financial  growth  of  the  Kresge  company 
has  been  included  as  a  typical  example  of  the  method  in  which 


302  CHAIN  STORES 

chain  stores  grow  financially.     The  process  seems  to  work  out  as 
follows : 

1.  A  single  store. 

2.  Idea  of  chain  of  stores.  Slow  growth  over  a  period  of  years 
and  gradual  development  of  an  organization  and  a  system  on 
which  to  operate. 

3.  Increased  economies  in  purchasing,  merchandising,  etc.,  and 
increased  profits  (with  the  exception  of  1921)  allow  more  stores 
to  be  opened  and  territorial  extension  of  operations.  At  this 
stage  the  chain  may  absorb  other  chains. 

4.  Increased  capitalization  of  common  stock  to  keep  pace  with 
development.  Perhaps  increased  preferred  stock  issue  to  provide 
extra  funds  for  further  expansion. 

Kingman  Brewster,  an  authority  on  the  legal  aspects  of  chain 
store  organization,  makes  the  following  comment : 

"One  of  the  most  difficult  problems  in  chain-store  or  industrial 
financing  is  the  financing  of  corporations  whose  assets  are  under  half  or 
three-quarters  of  a  miUion  dollars.  Whoever  solves  the  problem  of 
financing  the  small  business  will  make  a  very  decided  contribution  to 
corporation  finance.  For  the  reason  of  necessity  the  chains  in  the  early 
stages  have  financed  their  expansion  out  of  earnings.  However,  I 
once  heard  F.  W.  Woolworth  state  that  such  a  policy  was  inconsistent 
with  a  desire  to  obtain  a  nation-wide  distribution  within  the  life  time  of  a 
single  man,  and  that  in  his  own  case  he  had  found  it  necessary  to  pro- 
vide for  stock  issues  (originally  $50,000,000  common,  $13,000,000 
preferred)  for  the  purpose  of  making  his  institution  a  national  one. 

"J.  C.  Penney  has,  I  think,  used  only  about  $3,000,000  preferred 
stock,  the  rest  of  the  financing  being  done  out  of  earnings.  How- 
ever, his  organization,  local  and  administrative,  permits  of  an  expan- 
sion by  what  amounts  to  additional  partnerships  and  is  very  unusual 
in  chain  store  operations.  Furthermore,  it  is  apparent  that  the  method 
of  financing  is  very  frequently  dependent  upon  the  form  of  corporate 
organization,  and  the  problem  has  been  to  find  a  method  of  transition 
from  the  business  doing  five  or  ten  million  dollars  to  a  corporate  form 
of  organization  which  would  permit  of  financing  a  business  to  do  twenty- 
five  millions  or  more.  The  obtaining  of  this  change  without  disrupting 
the  administrative  organization  is  the  problem  upon  which  all  growing 
chain  organizations  are  working." 

Chain  Expansion  from  the  Financial  Standpoint. — The  first 
method  of  expansion,  as  previously  mentioned  in  the  first  part  of 


CHAIN  STORE  FINANCING  AND  GROWTH  303 

this  chapter,  is  to  provide  the  necessary  funds  from  current 
earnings  of  stores  already  in  operation.  Such  a  poHcy  is  entirely 
in  line  with  the  inherent  conservative  idea  pursued  by  chain 
store  organizations  in  general.  By  financing  a  new  store  out  of 
accumulated  cash  surplus,  there  is  no  heavy  overhead  charge 
under  which  the  new  store  must  struggle.  All  the  expenses  inci- 
dent to  starting  the  new  branch  are  already  arranged  for,  and 
paid  before  the  store  opens. 

This,  of  course,  does  not  apply  in  cases  where  stores  finance 
themselves.  For  example,  where  each  store  is  operated  as  a 
separate  corporation,  it  frequently  borrows  on  its  improved  real 
estate  and  obligates  itself  to  pay  off  the  loan  out  of  earnings. 
This  may  take  a  period  of  five  to  ten  years,  but  it  means  of  course 
that  the  earnings  of  the  local  business  go  into  the  capital  assets. 

The  method  of  financing  out  of  earnings,  though  it  is  safe,  is 
slow,  and  men  with  vision,  anxious  to  succeed,  and  sure  of  the 
soundness  of  their  principles  and  methods,  wish  to  take  short 
cuts.  That  is,  they  wish  to  borrow  the  capital  from  Wall  Street 
or  directly  from  the  public.  In  other  words,  they  wish  to  float 
stock,  generally  preferred,  to  the  public,  in  order  that  they  may 
the  quicker  get  a  large  number  of  stores  into  actual  operation. 
This  may  be  accomplished  by  combining  with  another  chain,  not 
by  purchase,  but  by  affiliation,  as  was  the  case  with  the  present 
components  of  the  Woolworth  chain.  It  may  be  necessary  to  buy 
out  other  chains,  and  such  a  sudden  drain  on  the  exchequer  may 
make  it  necessary  to  seek  financial  help  outside  the  company. 

In  the  Penney  chain,  each  new  store  is  financed  on  a  partner- 
ship basis.  In  other  chains  there  are  special  policies  pursued  in 
opening  new  stores,  although  in  each  case  the  central  organiza- 
tion furnishes  all  the  capital.  It  is  impossible  to  lay  down  any 
rules  for  financing  other  than  those  which  govern  the  money 
market  in  general.  The  great  advantage  of  the  chains  has  always 
been  that  they  did  not  find  it  necessary  to  borrow  money  when 
money  was  high.  Another  point  in  their  favor  is  that  ordinarily 
there  is  no  large  inventory  to  finance  in  periods  of  declining  prices. 
The  best  insurance  for  the  future  is  the  amount  of  cash  in  banks. 

Distribution  of  Stock. — Some  chain  organizations,  in  spite  of 
their  size,  have  always  kept  the  control  of  the  company  in  com- 
paratively few  hands.     For  example,  this  policy  has  been  tradi- 


304  CHAIN  STORES 

tional  with  the  Great  Atlantic  &  Pacific  Tea  Co.,  and  with  the 
Singer  Sewing  Machine  Co.  Both  these  companies  have  pursued 
a  pohcy  of  expansion  without  borrowing,  and  this  explains  the 
small  distribution  of  the  stock. 

Other  companies,  and  the  number  of  this  latter  class  is  growing 
more  numerous,  like  to  have  the  stock  distributed  as  widely  as 
possible  among  the  public,  and  especially  the  public  which 
purchases  their  goods.  For  this  purpose  the  par  value  of  the 
stock  is  often  put  at  $10  so  that  distribution  among  small  stock- 
holders may  be  even  wider.  The  psychology  of  this,  of  course, 
is  that  owners  of  stock  in  a  certain  chain  will  purchase  goods 
there  rather  than  somewhere  else. 

When  a  chain  store  wishes  to  sell  stock,  it  has  two  alternatives: 

1.  It  may  go  to  a  responsible  broker  and  pay  him  a  certain  amount  for 
underwriting  the  stock. 

2.  It  may  try  to  sell  the  stock  directly  to  its  customers. 

If  a  chain  store  stock  issue  is  to  be  floated  from  Wall  Street, 
the  issue  of  stock  must  be  large.  The  underwriters  do  not  care 
to  handle  anything  small.  It  would  not  pay  them  to  set  in 
motion  the  machinery  for  selling  stock  on  a  large  scale,  the 
newspaper  campaigns  in  various  cities,  the  syndicate  members, 
etc.  There  are  two  necessities  for  floating  a  chain  store  stock 
issue  from  New  York. 

1.  The  chain  must  be  large. 

2.  The  chain  must  be  national  or  at  least  sectional. 

A  chain  of  stores  is  known  only  in  the  localities  where  it  sells 
goods.  A  manufacturing  plant  is  known  far  and  wide  over  the 
country  because  of  the  wide  distribution  of  its  products. 

Figure  53  shows  the  method  which  Merrill,  Lynch  &  Company 
used  to  put  before  the  public  the  advantages  of  the  S.  S.  Kresge 
stock.  The  graphic  method  has  been  employed  to  show  the 
enormous  growth  in  profits  and  sales  compared  with  the  compara- 
tively smaller  growth  in  number  of  stores  operated. 

If  a  chain,  which  is  local  and  comparatively  small,  wishes  to 
distribute  its  stock,  it  may  call  in  a  local  broker  or  else  attempt 
to  float  the  stock  itself.     The  stock,  of  course,  must  be  floated 


CHAIN  STORE  FINANCING  AND  GROWTH 


305 


S.  S.  Kresge  Company 

Detroit,  Mich. 

Operating  a  chain  of  199  stores  selling  merchandise 
at  prices  ranging  from  5  cents  to  $1.00 

Profits 


I    —I 1 \ 

V-'i 

Yearly  PerccnMgc  of  Increase 

in  Stores,  Sales  arid  Profits 

S.  S.  Krctgc  Co., 

>909-i9io 

y^ 

/ 

/ 

f 

,/ 

,/ 

y 

./ 

,/ 

/ 

y 

/ 

,..,^^ 

y' 

/ 

^ 

/ 

--'■' 

/ 

^■'' 

/ 

^.-■' 

-' ,  y 

'.' 

^.^.^^ 

^ 

--'> 

— 

^^' 

k',-' 

— ■ 

,^- 

""-si^:^^^ 

"^ 

jS"^"**" 

__,_. 

Sales 
902% 


Stores 
350% 


1909        1910 

16^508.752 
408,957 
SI 


1912  1913        1914  1915        1916 
J10,325,«7                  $16,097,511  »2«,396.5U 

669,179  1.150.497  aa72.34« 

e  US  157 


1917       1918        1919       1920 

«36.309.5I3  SSW454U 

2,9!0,99»  3,677,50* 


The  above  Chart  shows  the  growth  of  the  S.  S.  Kresge  Company  since 
1909.  The  sales  for  the  first  eleven  months  of  the  current  year  were  reported 
at  $47,171,803  against  $43,421,735  for  1920.  The  repeal  of  the  excess  profits 
tax  is  expected  to  be  of  great  benefit  to  this  company. 

Stockholders  of  record  as  of  December  16th,  1921,  will  receive  on  Decem- 
ber 31st,  1921,  a  cash  dividend  of  3%  and  a  stock  dividend  of  54%. 

The  1921  edition  of  our  Kresge  pamphlet  may  be  had  on  application. 
The  information  contained  therein,  based  on  official  data  and  original 
research,  may  be  considered  authoritative  and  should  be  of  interest  to 
investors  and  business  men. 

Send  for  Circular  D-i28 

Merrill,  Lynch  &  Company 

Investment  Securities 

120  Broadway  New  York 

Uptown  Office,  11  East  43rd  Street 

CHICAGO  DETROIT  MILWAUKEE 

10.5  So.  La  Salle  St.  Penobscot  Building  First  Wisconsin  Nat'I.  Bank  Bldg. 

DENVER  LOS  ANGELES 

206  U.  S.  Nat'I.  Bank  Bldg.  I.  N.  Van  Nuys  Bldg. 

Members  of  the  New  York,  Chicago,  Detroit  and  Cleveland  Stock  Exchanges 

All  statements  herein  are  based  on  information  which  we  regard  as  reliable,  but 

we  do  not  guarantee  them. 


Fig.  53. — Advertisement  of  chain  store  securities. 


20 


306  CHAIN  STORES 

mainly  in  the  district  where  the  stores  are  operated,  because  it  is 
difficult  to  sell  stock  where  the  company  is  not  known. 

It  is  of  course  a  function  of  a  broker  not  only  to  dispose  of 
stock  for  the  purpose  of  adding  new  capital  to  a  chain  organi- 
zation, but  also  to  maintain  a  liquid  market  for  the  securities. 
In  this  respect  a  corporation  which  has  a  large  number  of 
stockholders  is  in  a  much  more  safe  position  than  where  the 
distribution  of  stock  is  localized.  There  is,  as  is  pointed  out  in 
this  chapter,  the  additional  interest  of  the  stockholder  in  the 
business  with  which  he  deals. 

If  a  chain  decides  to  sell  its  own  stock,  and  this  is  frequently 
the  case,  it  can  be  handled  either  by  a  mail  order  campaign  to 
customers  of  the  chain  or  by  combining  this  method  with 
advertising. 

Financial  Advertising. — Many  small  investors  in  chain  organi- 
zations never  would  have  gone  to  an  investment  house  for  their 
stock.  The  reason  they  invest  in  the  chain  securities  is  because 
they  are  personally  acquainted  with  its  activities  and  can  see 
for  themselves  the  business  done.  Therefore,  a  frequent  and 
sound  investment  argument  is  that  the  dividends  from  savings 
invested  in  chain  store  stock  will  help  to  pay  for  purchases.  It  is 
the  same  argument  which  was  so  successful  in  selling  the  stock  of 
American  Telephone  &  Telegraph  Company. 

There  are  certain  things  a  chain  should  show  in  financial 
publicity  matter: 

1.  The  prosperity  of  the  chain  at  present.  In  this  category 
come  net  sales  for  the  year  as  compared  with  past  years  and  the 
same  for  net  earnings.  Next  there  should  be  mention  of  dividend 
rate  at  present  and  in  the  past,  and  some  statement  of  the  security 
of  the  income  and  the  investment. 

2.  The  future  prospects  of  the  chain  and  a  concise  statement 
of  why  this  stock  is  being  offered  for  sale. 

Figure  54  shows  an  advertisement  appearing  in  the  local 
newspapers  in  districts  served  by  the  Waldorf  System,  Incor- 
porated. An  analysis  of  this  advertisement  discloses  the  follow- 
ing facts: 


1.  Why  customers  purchase  Waldorf  stock. 

2.  The  size  of  the  chain  and  its  volume  of  business. 


CHAIN  STORES  FINANCING  AND  GROWTH 


307 


Why  I  Want  Waldorf  Customers 
to  Share  in  Our  ProBts 


There  are  hundreds  of  people  eating  daily 
At  the  Waldorf  Lunches  who,  every  three 
months,  are  paid  back  by  the  Waldorf  the 
money  they  spent  in  the  meantime  for  their 
lunches.  They  have  found  one  of  the  most 
profitable  methods  of  reducing  the  cost  of 
living. 

They  are  the  men  and  women  who  have  put 
their  savings  in  the  common  stock  of  the  Wal- 
dorf System,  Inc.,  and  own  enough  shares  so 
that  the  dividends  they  have  received  pay 
for  their  lunches  the  year  around. 

I  am  taking  this  method  of  talking  to  our 
thousands  of  patrons,  as  a  great  many  of 
them  are  not  investors,  or  are  not  in  touch 
with  investment  houses,  and  are  therefore  not 
likely  to  know  what,  an  unusually  safe  and 
profitable  investment  the  common  slock  of  the 
Waldorf  System,  Inc.,  is. 

Many  of  our  customers,  for  mstancc,  do 
not  know  that  tht-  Waldorf  System,  Inc.,  is 
now  one  of  the  largest  chains  of  lunch  rooms 
in  the  country,  spreading  over  seven  States — 
that  it  is  growing  faster  than  any  other  chain — 
that  there  are  now  89  restaurants  in  28  dif- 
ferent cities — ^that  every  day  about  $30,000  is 
taken  in  in  cash  sales — that  although  less  than 
two  c«nts  is.oiade  on  the  average  meal  of  30 
cents,  the  vast  volume  of  36,000,000  meals  a 
year  enabled  the  Company  to  pay  substantial 
dividends  to  owners  of  Waldorf  common  stock 
last  year 

Why  do  I  want  more  of  our  customers  to 
become  owners  of  our  common  stock'  For 
much  the  same  reason  that  every  employee  in 
the  service  of  the  Waldorf  System,  Inc., 
through  a  profit-sharing  plan,  participates  in 
the  profits  of  this  System,  down  to  the  fel- 
lows that  scrub  the  floors.  Nothing  pays  so 
well  as  taking  employees  and  the  public  into 
partnership,  so  to  speak  For  one  of  ihe  rea- 
sons you  receive  more  prompt  and  courteous 
service  in  a  Waldorf  Lunch  is  because  the  man 
serving  you  frets  the  pride  and  responsibility  of 
being  something  more  thnn  a  salaried  em- 
ployee. 

For  mstance,  you,  as  a  Waldorf  customer 
buy  some  of  its  common  stock,  and  thereby 
become  a  part  owner.  You  now  feel  more  at 
home,  eating  in  a  restaurant  in  which  you  have 
an  owner's  interest.  You  take  an  interest  in 
everything  going  on.  If  you  notice  some  lapse 
in  the  courteous  service  or  high  standard  of 
cleanliness  of  the  Waldorf  Lunches,  you  report 
it  at  once  to  the  management.  You  will  prob 
ably  be  giving  us  some  idea  of  how  a  little  im- 
provement might  l>c  made,  as  other  customer- 
stockholders  have     You.  become  a  messenger 


of  gotxi  will.  For,  while,  previously,  you  would 
tell  a  friend  casually  of  the  good  things  to  eat 
at  a  Waldorf  Lunch,  you  now,  as  an  owner, 
naturally  go  out  of  your  way  to  spread  the 
good  news  of  better  food.  Your  interest 
brings  Waldorf  more  and  more  business — be- 
cause it  is  brmging  business  to  yourself  You 
are  not  satisfied  unless  other  customers  are 
satisfied — and  that  spirit  helps  us  in  pleasing 
the  56,000,000  people  wc  serve  in  a  year. 

Before  we  thus  publicly  invited  our  cus- 
tomers to  become  part  owners  of  Waldorf 
Lunches  through  purchase  of  shares  of  the 
common  stock,  we  wanted  the  most  positive 
evidence  to  show  the  public  how  safe  and 
profitable  such  an  investment  would  he — 
proof  that  any  man  or  woman  could  understand. 
We  now  have  it. 

During  the  last  year  Dun's  reported  8881 
business  failures  in  the  United  States.  Prac- 
tically everybody  knows  that  many  of  the 
largest  corporations  in  the  country  had  to  cut 
off  their  dividends  during  the  business  depres- 
sion, and  that  many  of  them  closed  down  en- 
tirely. Yet,  since  April.  1919,  the  Waldorf 
System,  Inc.,  has  enjoyed  such  prosperity  that  it 
increased  the  number  of  its  lunch  rooms  from 
59  to  8^-a  50% 


The  net  earnings  for  1919  were  at  the  rale 
of  $385,467  a  year  Although  the  increased  costs 
of  provisions  reduced  the  Company's  profits 
per  meal  during  1920,  the  new  restaurants  ac- 
quired and  the  large  increase  in  the  volume  of 
business  with  careful,  efficient  management, 
enabled  the  companv  to  show  net  earnings  at 
the  rate  of  $626,703  for  1920. 

In  1919  dividends  on  the  common  stock  were 
at  the  rate  of  10%  per  year,  cash  dividend.  In 
the  year  just  closed,  1920,  there  were  a  cash  div- 
idend of  107o  and  two  stock  dividends  of  5% 
each.  Based  on  the  present  outlook,  I  can  see 
no  reason  why  future  earnings  should  not  equal 
or  exceed  past  earnings. 

This  company — nor  any  of  its  offtcers^has 
no  common  stock  to  sell.  It  may  be  purchased 
like  an)  other  stock  in  the  open  market  through 
any  stock  exchange  member  The  market  price 
IS  shown  daily  on  the  Boston  Stock  Exchange. 

If  you  have  no  broker  connection,  or  if  you 
are  not  familiar  with  investment  matters,  X 
shall  be  glad  to  advise  you  of  the  name  of 
.some  responsible  investment  house  through 
which  you  can  buy  Waldorf  Common  Stock. 
I  shall  welcome  you  as  a  part  owner  of  this 
business,  no  matter  how  few  shares  you  can 
buy  And  you'll  have  the  satisfaction  of  hav- 
ing your  money  invested  in  a  business  that  has 
been  proved  safe. 


^p  ^^^^^^^'Zy^^^^if^i^^^     President 

WALDORF  SYSTEM  INCORPORATED 


169  High  Street 
Boston,  Mau. 


Fig.  54. — Form  of  financial  advertising  used  by  AValdorf  System,  Inc. 


308  CHAIN  STORES 

3.  The  results  of  customers'  owning  stock  and  the  value  to  the  chain  and 
the  customer. 

4.  The  safetj^  of  the  investment. 

5.  Net  earnings. 

6.  Dividends  paid. 

Conclusions. — As  the  various  chains  grow  in  size,  the  problem 
of  financing  will  grow  more  important  than  it  has  been  in  the  past. 
Even  now  the  capitalization  of  some  of  the  large  chains  is  tremen- 
dous. For  example,  the  F.  W.  Woolworth  Co.  has  $100,000,000 
of  common  stock  authorized,  of  which  $77,000,000  is  outstand- 
ing, plus  $12,000,000  of  preferred  stock.  The  United  Retail 
Stores  Corporation  was  capitalized  with  $10,000,000  eight  per 
cent,  preferred  stock,  1,000,000  shares  of  Class  A  common  stock, 
and  160,000  shares  of  founders  stock.  This  means  that  some  of 
these  chains  are  able  to  compete  in  capital  with  some  of  the 
largest  manufacturers,  and  this  power  behind  the  chains  is 
rapidly  making  them  a  factor  to  be  reckoned  with. 

Outside  financing  should  be  a  chain's  last  resort.  The  average 
chain  should  be  able  to  finance  new  stores  out  of  earnings.  In 
case  of  the  purchase  of  other  chains  or  a  particularly  large  ex- 
pansion program,  it  may  become  necessary  to  seek  help  outside, 
and  in  this  event  the  method  will  depend  on  the  size  and  character 
of  the  chain.  A  national  chain  may  be  financed  from  Wall 
Street;  a  local  chain  must  be  financed  locally  and  perhaps  by  the 
chain  itself. 


CHAPTER  XX 
INSURANCE 

By  M.  MacIntyre^ 

One  has  only  to  consider  for  a  moment  the  subject  of  insurance 
as  appHed  to  chain  store  systems  to  see  its  importance.  Insur- 
ance means  protection  from  HabiUty.  It  may  mean  solvency 
or  the  opposite.  At  a  comparatively  small  overhead  expense,  the 
chain  can  guard  itself  against  various  losses  which  it  may  incur 
and  over  which  it  has  no  control.  These  losses  fall  into  three 
general  classifications : 

1.  Damage  to  the  premises  or  merchandise,  the  most  frequent  cause  of 
which  is  fire. 

2.  Liability  on  account  of  personal  injuries  to  individuals  on  or  by  the 
property  of  the  chain,  through  accident. 

3.  Loss  through  the  dishonesty  of  employees. 

The  average  chain  may  look  at  these  problems  in  two  ways: 
First,  it  may  consider,  if  the  risk  is  well  distributed,  that  if 
one  store  is  destroyed  by  fire,  the  rest  of  them  will  remain 
unharmed  and  the  loss  will  be  comparatively  small,  and  can 
easily  be  borne.  Second,  it  may  be  argued,  if  the  locations  are 
not  distributed,  the  chances  of  a  severe  loss  on  a  single  occasion 
are  many  times  increased.  In  general,  the  insurance  policies  of 
the  various  chains  are  combinations  of  these  two  points  of  view. 

The  Insurance  Broker. — Insurance  is  a  matter  of  major 
importance,  not  to  be  left  entirely  to  the  insurance  broker.  It 
does  not  follow  that  what  the  broker  has  to  offer  in  the  way  of 
insurance  is  the  best  to  fit  the  individual  case.  The  company, 
however,  particularly  if  it  has  been  established  for  some  years, 
knows  fairly  well  where  the  greatest  risks  lie.  The  best 
policy,  therefore,  is  for  it  to  determine  what  insurance  it  needs 
and  then  make  the  broker  supply  it. 

A  company  gains  nothing  by  distributing  its  insurance  among 

1  Manager  of  the  Insurance  Department  of  one  of  the  largest  chain  store 
organizations  in  the  country. 

309 


310  CHAIN  STORES 

several  brokers.  It  is  certainly  no  cheaper,  and  it  adds  com- 
plicating factors.  If  the  business  is  not  given  totally  to  one 
broker,  in  the  event  of  loss  there  is  complication  or  confusion  in 
arranging  for  the  adjustment,  whereas,  if  one  broker  handles  the 
entire  insurance  business  of  the  chain,  it  will  be  found  more 
satisfactory. 

Insurance  should  be  awarded  on  purely  business  grounds. 
There  is  so  much  competition  among  rival  brokers  that  the  ques- 
tion of  patronage  is  apt  to  come  up.  Personal  friendships  should 
not  be  allowed  to  influence  the  decision. 

The  cheaper  policy  is  not  necessarily  the  better  policy.  In 
case  of  a  loss,  the  small  difference  in  premium  payments  will  count 
not  at  all.  An  insurance  company  can  be  compared  to  a  savings 
bank.  It  is  not  so  much  the  more  favorable  rate  of  interest  as 
the  security  which  is  desired.  It  is  not  wise,  therefore,  to  take  the 
policies  of  obscure  companies,  even  though  they  may  call  for 
smaller  premium  payments. 

One  more  caution  will  not  be  out  of  place.  Never  allow  your 
broker  to  get  a  lower  rate  by  some  subterfuge.  Misrepresenta- 
tion voids  the  policy  and  you  never  hear  about  it  until  the  loss 
occurs. 

Insurance  Against  Fire. — In  general,  it  is  unwise  to  take  any 
part  of  the  fire  risk.  Over-insurance  is  better  than  under- 
insurance. This  statement  applies  most  particularly  to  local 
chains  whose  stores  are  situated  near  each  other.  The  statement 
may  be  modified  in  the  case  of  the  larger  chains.  For  example, 
it  may  be  advisable  to  assume  the  initial  risk,  say  of  a  few  thou- 
sand dollars,  for  any  given  store  and  to  insure  the  excess  over  and 
above  that  amount.  This  will  give  a  lower  insurance  cost 
and  may  prove  cheaper  in  the  end.  It  should  not,  however,  be 
resorted  to  unless  the  locations  are  fairly  well  distributed.  There 
are  some  chain  stores  having  as  many  as  ten  stores  in  a  given 
conflagration  area  and  risks  of  this  sort  are  too  dangerous  for  any 
but  an  insurance  company  to  carry. 

At  first  thought,  it  would  seem  reasonable  to  suppose  that 
a  large  chain  could  carry  its  own  insurance  more  cheaply  than  the 
same  security  could  be  had  of  insurance  companies.  But,  as 
insurance  is  based  on  averages,  a  series  of  losses  may  occur  which 
would  cripple  the  organization,  and  therefore  even  the  largest 


INSURANCE  311 

chains  cannot  expect  to  insure  themselves  entirely — that  is,  assume 
their  own  risks.  The  fire  insurance  company  which  did  not  have 
more  locations  than  the  largest  chain  store  organization  would  be 
a  small  one  and  its  losses  would  soon  lead  it  into  bankruptcy. 

Chains  whose  member  stores  number  in  the  thousands  are 
comparatively  few.  Chains  in  the  hundreds  are  still  excep- 
tions, so  that  for  the  great  mass  of  chains,  complete  insurance 
against  damage  by  fire  is  highly  to  be  recommended. 

Real  Estate  Insurance. — As  we  saw  in  the  chapter  on  "Locat- 
ing the  Store,"  chain  store  systems  may  have  to  enter  the  real 
estate  business  themselves  in  order  to  get  the  most  desirable 
locations  for  their  own  stores,  and  by  that  we  mean  that  it  may 
sometimes  become  necessary  to  purchase  or  to  take  the  lease  of  an 
entire  building,  or  at  least  of  more  space  than  is  actually  needed, 
in  which  to  conduct  a  link  in  the  chain  store  system.  This 
brings  up  questions  of  real  estate  insurance.  Among  the  forms 
of  real  estate  insurance  commonly  carried  are  fire  insurance  on 
buildings,  rents,  leasehold  interest,  and  improvements. 

1.  Building  Insurance. — If  a  lease  of  an  entire  building,  and 
almost  invariably,  if  what  is  known  as  a  ground  lease  is  taken,  the 
lessee  (the  chain  store  system)  is  required  to  keep  the  building 
insured  for  the  benefit  of  the  landlord.  If,  when  making  the 
lease,  the  fire  clause  does  not  provide  that  the  repair  or  rebuilding 
of  the  premises  shall  be  performed  by  the  lessor  (the  landlord) 
insistence  should  be  made  upon  providing  that  the  building  insur- 
ance should  be  in  the  names  of  both  landlord  and  lessee  as  interest 
may  appear.  Building  insurance  frequently  contains  "loss 
payable"  clause  in  favor  of  a  mortgagee.  It  is  important  to  note 
that  it  is  not  necessary  for  the  mortgagee  interest  to  appear  in  all 
policies,  but  only  in  such  number  of  them  as  may  be  required  to 
make  up  the  amount  of  the  mortgagee's  interest.  In  other 
words,  to  have  a  mortgagee  clause  or  designation  in  some  policies 
and  not  in  others  does  not  render  the  insurance  non-concurrent. 

The  question  of  amount  of  insurance  is  important.  If  the 
lessee  is  responsible  for  deficiency  of  insurance  in  case  of  loss,  it  is 
advisable  to  insure  for  full  insurable  value  regardless  of  any 
co-insurance  clause.  One  hundred  per  cent,  co-insurance  should 
never  be  used  in  building  policies.  Insurable  value  is  not  replace- 
ment value,  but  replacement  value  less  depreciation.     Recently 


312  CHAIN  STORES 

it  has  become  possible  to  carry  insurance  against  loss  in  connec- 
tion with  a  fire  due  to  depreciation,  but  prior  to  that  time  a  loss 
due  to  depreciation  had  to  be  borne  by  the  lessee  or  the  landlord 
according  to  the  terms  of  the  lease. 

2.  Rent  Insurance. — There  are  several  forms  of  rent  insur- 
ance— rental  value  (occupied  or  vacant),  rent  (occupied  only) 
and  leasehold  interest  (rent  paid  in  advance).  It  is  sometimes 
difficult  to  know  which  form  should  be  used.  Generally  speaking 
Rental  Value  form  should  be  used  in  the  following  two  cases: 

A.  When  an  owner  leases  a  building  to  a  number  of  tenants 
whose  leases  contain  provision  for  abatement  of  rent  in  case  of 
untenantability  due  to  fire  and  or  termination  of  lease  with  or 
without  refund  of  rent  paid  in  advance. 

B.  When  the  lessee  of  an  entire  building,  under  a  fire  clause 
providing  for  no  abatement  of  rent,  leases  various  portions  to 
dififerent  tenants  with  provision  in  lease  for  abatement  of  rent 
in  case  of  untenantability  due  to  fire. 

The  Rent  (Occupied  Only)  form  should  be  used  where  an  owner 
leases  to  a  single  tenant  under  the  conditions  above  described,  or 
where  a  lessee  of  an  entire  building  under  fire  clause  providing  for 
no  abatement  of  rent,  sublets  the  entire  premises  to  a  third  party 
under  terms  providing  for  an  abatement  of  rent.  In  many  insur- 
ance jurisdictions  there  is  a  difference  of  25  per  cent,  in  the  rate 
between  the  two  forms  in  favor  of  the  Occupied  Only  form,  which 
should  be  taken  advantage  of  whenever  possible. 

Rent  Paid  in  Advance. — Where  a  lessee  is  holding  under  a  lease 
providing  for  an  abatement  of  rent  in  case  of  untenantability  due 
to  fire,  but  not  providing  for  refund  of  rent  paid  in  advance,  he 
should  insure  under  the  leasehold  interest  form. 

3.  Leasehold  Interest. — There  are  several  forms  of  leasehold 
insurance,  including  rent  paid  in  advance,  anticipated  profits  and 
bonus.  The  first  form  differs  from  the  others  in  that  it  refers  to 
rents  paid  or  to  be  paid.  The  other  forms  are  designed  to  guard 
against  the  loss  due  to  fire  through  the  termination  of  the  lessee's 
lease,  of  the  benefits  of  moneys  invested,  or  of  profits  which, 
during  the  term  of  the  lease,  would  have  accrued.  The  amount 
collectible  under  these  forms  is  automatically  reduced  according 
to  the  unexpired  term  of  the  lease  on  any  given  date. 

4.  Improvements. — Improvements   are   betterments   made   to 


INSURANCE  313 

existing  buildings,  and  a  lessee  may  insure  its  interest  in  such 
improvements  against  damage  to  or  the  loss  of  them  by  fire  in  its 
own  name.  A  landlord  is  not  generally  under  the  obligation  to 
restore  improvements  made  by  a  tenant,  although  an  owner 
usually  does  so  unless  the  improvements  are  of  an  unusual 
character  or  expensive.  It  should  be  kept  clearly  in  mind  that, 
if  a  lessee  erects  a  new  building  on  vacant  land,  it  does  not  con- 
stitute an  improvement  within  the  meaning  of  the  improvement 
form  of  insurance.  The  same  would  have  to  be  insured  as 
a  building  in  the  name  of  the  lessee  as  owner  with  a  special  clause 
providing  that  it  is  standing  on  leased  ground  if,  by  the  terms  of 
the  lease  of  the  ground,  title  to  the  property  did  not  immediately 
pass  to  the  landlord.  If  title  passed,  then  the  building  must  be 
insured  as  such  in  name  of  the  ground  landlord,  and  the  lessee  as 
interest  may  appear,  with  the  consent  of  the  landlord. 

Fire  Insurance  Policies. — There  are  two  types  of  general  fire 
policies,  first,  floater  policies,  and,  second,  blanket  policies. 
These  are  in  contra-distinction  to  ordinary  policies  applying  to  a 
specific  location.  A  blanket  policy  covers,  let  us  say,  any  given 
number  of  locations  in  the  chain.  A  floater  policy,  on  the  other 
hand,  covers  all  present  locations  and  any  others  which  may  be 
acquired  of  the  same  class.  It  is  necessary,  of  course,  to  carry 
specific  policies  on  warehouses  or  office  buildings  where  the  value 
of  the  unit  is  especially  large. 

In  the  larger  cities,  and  these  are  where  the  greatest  number  of 
chain  stores  are  located,  the  80  per  cent,  co-insurance  clause 
is  in  current  use.  It  is  important  to  make  a  study  of  this  clause. 
It  does  not  mean  that  it  is  necessary  for  the  chain  store  organiza- 
tion to  carry  any  part  of  its  risk.  As  an  example  of  what  the 
clause  is,  let  us  assume  that  the  insurable  value  of  the  property 
is  ten  thousand  dollars  and  that  eight  thousand  dollars  of  insur- 
ance is  carried.  If  a  fire  loss  of  anything  up  to  eight  thousand 
dollars  is  sustained,  it  may  be  collected  from  the  insurance  com- 
pany in  full.  On  the  other  hand,  if  only  seven  thousand  dollars 
worth  of  insurance  were  carried,  then  only  seven-eighths  of  the 
actual  loss  could  be  recovered,  and  so  on  in  the  same  proportions. 
In  other  words,  you  must  insure  80  per  cent,  of  the  value  of 
the  property  if  you  wish  to  collect  the  full  amount  of  the  partial 
loss.     Otherwise,  it  is  only  possible  to  collect  proportionately. 


314  CHAIN  STORES 

Plate  Glass  Insurance. — Since  window  display  forms  such  an 
important  part  in  chain  store  merchandising,  there  are  many 
plate  glass  windows  to  be  considered  in  the  insm-ance  problem. 
Chain  stores  having  several  hundred  stores  may  perhaps  safely 
assume  their  risks  on  plate  glass  insurance.  If  you  have  been 
carrying  insurance,  and  wish  to  see  how  it  would  work  out  in 
your  own  case,  get  figures  for  the  last  two  years  as  to  breakages, 
and  get  a  glass  concern  to  give  you  a  figure  as  to  the  cost  of  mak- 
ing replacements.  Allow  a  25  per  cent,  salvage  for  glass  recovery. 
Compare  the  cost  of  replacement  minus  salvage  with  the  pre- 
miums you  paid  including  the  reinstatement  premiums  (wherever 
a  breakage  occurs,  it  is  necessary  to  get  a  new  policy,  and  to  pay 
a  so-called  reinstatement  premium). 

If  the  cost  in  two  years  is  less  than  the  premiums  which  it 
would  have  been  necessary  to  pay,  then  it  may  be  well  to  experi- 
ment for  a  year  in  assuming  your  own  risk,  setting  up  on  the  books 
a  fund  to  take  care  of  breakages,  this  fund  to  be  equal  to  the 
premiums  you  would  have  paid. 

The  reason  the  company  can  assume  such  a  risk  as  this  is  that, 
even  though  a  heavy  series  of  losses  should  occur,  they  are 
limited  in  any  single  case. 

Public  and  Employers'  Liability  Insurance. — Insurance  against 
accident  on  the  premises  costs  little  and  the  possibilities  of 
incurring  damage  suits  are  great.  It  is  likewise  necessary  to 
insure  employees  under  the  compensation  law.  These  are 
cases  of  protection  against  events  which  are  not  very  likely  to 
happen,  but,  in  the  event  of  their  occurrence,  the  claim  for  dam- 
ages may  be  large. 

In  choosing  the  company  in  which  to  take  out  this  class  of 
insurance,  the  best  is  none  too  good.  Liability  cases  give  rise 
to  claims  which  may  not  be  settled  for  years,  and  you  want  to  be 
sure  the  insurance  company  will  be  doing  business  at  that  time. 
If  the  insurance  company  fails,  it  is  well  to  remember  that  the 
liability  of  the  chain  organization  is  not  in  any  way  lessened 
thereby. 

Chains  in  certain  lines  may  find  it  necessary  to  carry  special 
liability  insurance.  For  example,  chain  drug  stores  should  carry 
druggists'  liability  insurance  against  wrong  filling  of  prescrip- 
tions and  also  against  incorrect  delivery. 


INSURANCE  315 

Since  most  chain  stores  use  automobiles  for  transportation  of 
goods  between  stores  and  warehouses,  if  not  also  for  retail 
delivery,  automobile  liability  insurance  should  be  carried.  It  is 
well  to  have  this  in  the  same  company  which  covers  the  pubhc 
liabiUty  in  stores,  since  there  are  frequently  border-line  cases. 
If  there  are  two  insurance  companies  involved,  it  would  permit  a 
dispute,  whereas  if  there  is  only  one  company,  there  can  be  no 
excuse  for  its  not  shouldering  the  entire  responsibility. 

Every  accident  of  any  kind  should  be  reported  to  the  insurance 
company,  even  though  there  are  no  personal  injuries.  The  latter 
may  develop,  and  failure  to  give  notice  may  prejudice  the 
insurance. 

Other  Forms  of  Insurance. — Burglary  and  hold-up  insurance 
is  almost  a  necessity,  especially  since  it  is  known  that  the  member 
stores  operating  on  a  cash  and  carry  basis  take  in  a  great  deal  of 
money. 

Protection  against  messenger  and  paymaster  robberies  should 
also  be  carried.  This  may  be  included  on  the  same  policy  with 
the  burglary  and  hold-up  insurance. 

Life  insurance  on  executives  drawn  in  favor  of  the  corporation 
or  firm  may  be  desirable  as  a  means  of  offsetting  temporary  loss 
of  business  or  the  lessened  ability  of  the  new  incumbent.  This 
is  a  matter  for  individual  decision. 

Group  insurance  may,  or  may  not,  be  an  important  stabilizing 
factor  in  labor  turnover.  Where  the  wages  in  a  trade  are  prac- 
tically fixed,  as  in  cases  where  employees  are  unionized,  the  addi- 
tional attraction  of  group  insurance  may  prove  alluring.  But 
where  there  is  no  fixed  rate,  the  employees  seem  to  prefer  an 
increase  in  wages  rather  than  to  have  insurance  protection, 
regardless  of  how  small  this  increase  may  be.  That  is,  the 
employee  of  the  retail  store  class  prefers  the  small  immediate 
advantage  to  the  greater  advantages  which  would  accrue  to  his 
dependents  after  his  death. 

Employees  will  not  stick  to  one  chain  merely  on  account  of 
group  insurance,  if  they  can  go  to  another  chain  which  also  offers 
them  group  insurance.  This  defect,  of  course,  may  be  obviated 
to  some  extent  by  making  the  insurance  inoperative  during  the 
first  six  months. 

Group  insurance  is  a  question  which  affects  the  liability  of  the 


316  CHAIN  STORES 

company  in  no  way.  Its  purpose  is  rather  towards  making  the 
employee  more  satisfied  and  contented,  and  in  reducing  the  labor 
turnover.  Each  chain  must  decide  whether  it  answers  this  pur- 
pose from  the  circumstances  and  factors  which  bear  on  its  own 
case. 

Bonding  Employees. — Chain  store  employees  should,  without 
exception,  be  bonded.  This  does  not  mean  that  there  is  a  large 
percentage  of  dishonesty  among  chain  store  employees,  but  there 
undoubtedly  is  great  opportunity  for  dishonesty  in  various  ways, 
and  this  should  be  discouraged  by  the  company  in  every  possible 
way. 

The  purpose  of  bonding  employees  is  not  so  much  on  account 
of  the  expectation  of  recovering  losses,  as  for  the  elimination  by 
the  bonding  company  of  dishonest  employees.  To  recover 
losses  on  a  bonded  employee  it  is  necessary  to  prove  dishonesty. 
Most  thefts  from  chain  stores  are  made  in  small  quantities  and 
detection  of  any  individual  delinquency  is  difficult.  Further- 
more, all  losses  not  proved  against  dishonest  employees  must  be 
borne  by  the  employer. 

The  bonding  company's  real  function  is  to  serve  as  an  investi- 
gator of  the  character  of  the  chain's  employees.  No  bonding 
proposition  which  does  not  contemplate  a  thorough  and  immedi- 
ate investigation  of  the  prospective  employee's  record  is  any 
good.  The  bonding  business  is  founded  on  the  average  honesty 
of  the  human  being,  and  its  success  is  determined  by  narrowing 
the  risk,  in  so  far  as  possible,  through  elimination  of  dishonest 
individuals. 

The  way  to  prevent  losses  is  not  to  have  employees  who  steal. 
Bonding  is  one  way  of  selecting  honest  individuals,  as  well  as 
a  means  of  protection  against  defalcation. 

Conclusions. — A  chain  store  system  makes  use  of  every  econ- 
omy possible  in  its  effort  to  make  the  purchasing  and  merchandis- 
ing mechanism  100  per  cent,  efficient.  Therefore,  it  is  important 
to  make  sure  that  a  lack  of  protection  where  protection  is 
necessary  and  possible  should  not  nullify  the  merchandising 
economies.     That  is,  insurance  should  be  adequate. 

The  problem,  of  course,  differs  for  the  chain  with  three  stores 
and  the  chain  with  three  hundred,  not  in  principle,  but  in  the 
variety  of  risks  to  be  assumed.     The  larger  the  company  and 


INSURANCE  317 

the  larger  the  number  of  branch  stores  operated,  tlie  larger  the 
opportunity  for  self-insurance.  In  the  largest  chains,  there 
should  be  a  special  department  to  take  care  of  insurance  prob- 
lems, to  decide  on  the  necessity  of  protection  and  the  amount  of 
insurance  which  should  be  carried,  premium  necessary  to  pay. 
But  do  not  neglect  your  insurance  problems.  It  is  worth  while 
to  pay  for  the  protection  insurance  gives. 


CHAPTER  XXI 
THE  MANUFACTURER'S  CHAIN 

It  is  necessary  at  once  to  sound  a  caution  against  confusing 
chains  which  manufacture  with  the  manufacturer's  chain.  The 
former  is  primarily  a  retaiUng  organization  and  in  no  case  Hmits 
its  sales  to  the  articles  it  manufactures.  It  sells  what  the  pubhc 
wants  and  if  it  can  make  the  public  want  goods  of  its  own  manu- 
facture so  much  the  better.  The  true  manufacturer's  chain,  on 
the  other  hand,  is  limited  to  a  manufacturer  who  aims  to  dispose 
of  a  part  or  all  of  his  output  through  his  own  retail  outlets. 

The  immediate  causes  of  a  manufacturer  starting  a  chain  of 
retail  stores  may  be  many,  but  the  majority  of  them  come  down, 
in  the  end,  to  dissatisfaction  with  the  methods  of  distribution. 
Many  companies  find  the  jobber  and  the  retailer  extremely 
unsatisfactory.  In  times  of  depression,  these  outlets  become 
choked,  and  the  manufacturer  is  compelled  impotently  to  wait 
until  the  road  is  clear.  In  times  of  prosperity,  jobbers  and 
dealers  send  in  order  after  order,  but  when  the  turn  comes  they 
are  just  as  quick  with  their  cancellations. 

Manufacturers  who  start  retail  stores,  therefore,  do  so  usually 
with  the  clear  purpose  of  distributing  their  products  more  di- 
rectly. That  they  have  had  no  retailing  experience  is  too 
often  lost  sight  of  at  the  beginning.  Manufacturing  and  retail- 
ing functions  are  almost  diametrically  opposed.  It  takes  a  differ- 
ent type  of  mind  in  the  executive  and  an  entirely  different  type  of 
organization  for  these  two  functions.  In  addition,  there  are 
the  ever-present  questions  of  whether  manufacturing  or  retailing 
is  more  important  to  the  company,  and  the  question  of  which  one 
should  prevail.  The  fact  that  there  are  many  successful  retail 
chains  operated  by  manufacturers  does  not  alter  the  fact  that  the 
manufacturer  has  to  face  an  exceedingly  difficult  problem. 

Advantages  Possessed  by  the  Manufacturers'  Chain. — A 
manufacturer  should  take  careful  stock  of  what  is  to  be  gained 
before    definitely   deciding  to   enter  the  retail  field.     In  other 

318 


THE  MANUFACTURER'S  CHAIN  319 

words,  he  must  budget  his  prospects.  On  one  side  of  the 
page  he  must  put  the  advantages  he  expects  to  gain  and  on  the 
other  the  obstacles  which  he  must  be  prepared  to  surmount. 
He  must  carefully  weigh  the  results. 

The  following  discussion  is  based  on  an  excellent  article  on  the 
subject  which  appeared  recently.  In  the  first  place,  what  can 
the  manufacturer  hope  to  gain  by  starting  a  chain  of  retail  stores? 

1.  If  they  are  properly  managed,  he  should  receive  almost  100  per  cent, 
cooperation  in  backing  up  his  consumer  advertising.  This  brings  out 
immediately  one  of  the  causes  of  dissension  between  the  manufacturer  and 
the  dealer.  The  manufacturer  wants  his  product  given  first  preference 
by  the  jobber  and  dealer  and  the  same  feeling  is  shared  by  his  rival  manu- 
facturers. This  may  be  obviated  by  granting  exclusive  agencies,  but 
whether  exclusive  agencies  are  the  best  form  of  retail  merchandising  for 
manufacturers  is  open  to  question. 

2.  Retail  prices  can  sometimes  be  lowered.  This  is  a  very  real  advantage 
in  any  retailing  proposition.  The  chain,  however,  immediately  experi- 
ences the  condition  of  affairs  encountered  by  the  Regal  Shoe  Co.  where 
the  company  was  selhng  shoes  in  its  own  stores  at  less  than  the  Regal 
agency  around  the  corner.  What  is  the  answer?  Price  is  such  an  import- 
ant element  in  chain  store  competition  that  the  manufacturer  might  profit 
by  it.  Indeed,  the  abiUty  to  sell  at  a  lower  price  would  almost  be  necessary 
to  make  the  manufacturers'  chain  successful  in  a  short  time. 

3.  Any  service  work  demanded  by  the  retailer  can  be  rendered  more 
satisfactorily.  Naturally  the  management  can  install  the  most  modern 
merchandising  policies  and  see  that  they  are  uniformly  carried  out  in  the 
stores.  In  other  words,  the  manufacturer  will  initiate  his  own  service 
rather  than  wait  for  a  dealer  who  may  not  see  the  need  for  it  or,  if  he  does, 
may  not  have  sufficient  interest  to  bring  it  to  the  attention  of  the  man- 
agement. 

4.  Substitution  can  be  more  surely  avoided.  The  importance  of  this 
point  will  depend  largely  upon  the  company's  present  relations  with  its 
retailers. 

5.  The  consumer  and  his  tastes  can  be  studied  at  first  hand.  This  is 
a  real  advantage  and  one  which  many  manufacturers  have  taken  advantage 
of.  In  this  case  the  retail  stores  are  not  created  primarily  for  profit  and  the 
stores  are  usually  few  in  number  to  be  used  as  a  laboratory. 

6.  The  product  itself  can  frequently  be  improved  as  a  result  of  direct 
contact  with  the  user. 

7.  It  is  possible  to  develop  new  sales  arguments. 

8.  The  results  obtained  through  the  retail  stores  can  be  applied  in  deal- 
ing with  other  retailers  outside  the  organization. 

9.  Advertising  and  display  material  can  be  made  uniform  and  used  to 
much  greater  advantage  than  if  merely  distributed  to  agencies  or  retailers. 


320  CHAIN  STORES 

10.  Road  salesmen  can  be  trained  in  retail  stores. 

11.  By  the  publicity  attained,  new  dealers  may  be  secured  to  handle  the 
product. 

So  much  for  the  tabulation  of  advantages.  The  following 
are  some  practical  advantages,  as  found  by  representative  manu- 
facturers : 

One  of  the  main  reasons  for  manufacturers  opening  retail 
stores  was  the  larger  volume  of  sales.  In  many  cases  it  was  a 
last  resource.  In  some  cases,  stores  in  particular  communities 
have  been  opened  only  because  of  the  peculiar  character  of  the 
competition  there.  They  might  be  called  strategy  stores.  Some 
stores  have  been  started  when  a  market  had  to  be  created  for  a 
new  product;  sometimes  when  there  were  no  dealers  in  the  field, 
such  as  was  the  case  with  automobiles.  Sometimes  stores  were 
started  when  goods  were  so  novel  that  dealers  hesitated  to  take 
them  up.  This  was  true  of  Dennison's  retail  stores  in  the  early 
days.  Dealers  would  not  carry  a  large  enough  stock.  The 
present  Dennison  stores  are  more  like  warehouses  than  stores. 

As  far  as  reducing  the  retail  price  is  concerned,  one  company 
was  found  which  had  succeeded  in  selling  its  goods  at  from  15 
per  cent,  to  20  per  cent.  less. 

There  are  technical  products  which  demand  service.  The 
Waterman  Fountain  Pen  Co.  has  several  retail  stores.  Yawman 
&  Erbe  and  the  Libijjy  Bureau  are  further  examples. 

Manufacturers'  stores  may  serve  as  experimental  laboratories 
and  training  schools  for  salesmen.  The  manufacturer  can 
study  the  buying  public  through  his  retail  stores.  S.  E.  Summer- 
field,  president  of  the  Gotham  Hosiery  Co.,  says  that  through 
his  New  York  stores  he  can  get  information  regarding  public 
taste  he  could  not  secure  in  five  or  six  months  through  other 
dealers. 

Chain  Shirt  Shops  were  created  to  try  out  the  selling  of  Olus 
combination  shirtwaist  and  drawers  for  men,  which  had  not 
worked  well  in  the  regular  trade.  They  did  not  work  here  either, 
but  the  retail  stores  are  excellent  outlets  for  other  men's  wear. 
The  Dennison  stores,  according  to  Advertising  Manager  Schuyler 
Van  Ness,  are  used  as  laboratories  to  get  first  hand  criticism  of 
goods  from  home  consumers.  Defects  can  be  discovered 
immediately. 


THE  MANUFACTURER'S  CHAIN  321 

Some  manufacturers  have  found  that  one  of  their  stores  con- 
ducted profitably  is  of  more  value  in  convincing  retailers  of  the 
value  of  the  product  than  anything  else.  The  Gotham  stores 
are  frequently  visited  by  buyers.  The  retail  store  often  gives 
the  product  backing  in  the  eyes  of  the  public. 

The  Redfern  Corset  Company's  stores  are  maintained  almost 
entirely  to  train  dealers'  department  heads  and  saleswomen  in 
the  art  of  corset  fitting,  alteration,  merchandising,  and  stock- 
keeping. 

When  Dennison  moved  the  location  of  his  Philadelphia  store, 
a  nearby  retailer  threw  out  his  entire  department,  and  a  year 
later  put  it  back  with  double  the  size  because  of  increased  calls 
for  Dennison  goods. 

These  experiments  have  been  cited  at  length  because  they  illus- 
trate the  variety  of  uses  to  which  the  manufacturer  may  put  his 
retail  outlets.  The  manufacturer  who  is  thinking  of  starting  a 
chain  of  retail  stores  should  carefully  take  all  these  points  into 
consideration. 

Disadvantages. — The  disadvantages  which  the  manufacturer 
must  overcome  when  starting  retail  stores  are  so  serious,  that  it 
becomes  a  desperate  remedy  for  a  situation  which  can  be  solved 
in  no  other  way.     The  disadvantages  may  be  listed  as  follows: 

1.  It  has  taken  years  in  nearly  every  case  to  get  stores  on  a  paying  basis. 
Many  times  they  have  been  operated  at  actual  financial  loss. 

2.  There  is  always  the  danger  of  trying  to  compete  with  the  company's 
own  retailers  unless,  like  Browning,  King  &  Co.,  the  retail  stores  absorb 
the  company's  entire  production. 

3.  Frequently  the  retailers  object  strongly  to  a  retail  store  operated  by 
the  company  and  while  the  stores  of  the  company  may  be  successful,  sales 
may  fall  off  sharply  in  agencies. 

4.  Since  the  manufacturer  must  maintain  the  highest  standards  in  his 
stores,  he  has  a  high  overhead. 

5.  The  chain  must  obtain  the  services  of  an  experienced  retail  manager. 
This  is  essential.  The  manufacturer  himself  is  not  competent  to  look 
after  the  retailing  end  of  the  business.  The  whole  question  of  the  personnel 
becomes  more  difficult  owing  to  the  lack  of  personal  relations  between  the 
management  and  the  retail  end  of  the  business. 

6.  The  manufacturer  is  limited  to  his  own  line  of  goods.  In  this  way  he 
may  be  at  a  disadvantage  in  comparison  with  independent  dealers  or  chains. 
It  is  also  claimed  that  the  manufacturer's  chain  does  not  respond  quickly 
to  change  in  public  taste  because  the  initiative  generally  comes  from  the 
manufacturing  instead  of  the  retail  end. 

2\ 


322  CHAIN  STORES 

The  manufacturer  can  now  see  just  what  points  he  must  con- 
sider before  starting  a  retailing  venture.  In  nearly  every  way  he 
is  at  a  disadvantage  when  compared  with  the  retail  chain  selling 
the  products  of  others  as  well  as  its  own,  but  the  fact  that  there 
are  successful  chains  run  by  manufacturers  is  sufficient  evidence 
that  the  enterprise  is  by  no  means  hopeless.  The  manufacturer 
must  weigh  the  following  points : 

1.  What  is  my  purpose  in  entering  the  retail  field? 

2.  Is  there  no  cheaper  and  more  easy  way  out  of  the  difficulty  experienced 
in  distributing  or  selling  the  product? 

Organization. — When  the  manufacturing  end  is  in  control, 
chain  organization  may  differ  in  various  ways.  The  essential 
point  is  the  degree  of  control  exercised  by  the  directors  of  the 
manufacturing  company  and,  in  some  measure,  the  degree  with 
which  they  exercise  the  power  actually  in  their  hands. 

Following  are  some  of  the  ways  in  which  the  retail  outlets  and 
the  manufacturing  enterprise  can  be  and  are  coordinated : 

1.  Where  the  whole  output  of  the  factory  is  sold  through  retail 
outlets  of  the  company.  This  is  the  simplest  form  of  manu- 
facturers' chain  because  it  eliminates  the  intricate  dealer  and 
agency  question.  In  this  class  come  such  chains  as  Browning, 
King  &  Co.  who  started  in  1868  to  retail  their  own  products 
and  now  own  seventeen  stores.  The  Library  Bureau  for  forty 
years  has  followed  the  policy  of  selling  all  its  goods  through  its 
own  stores.  The  Singer  Sewing  Machine  Co.,  with  6,000  stores 
in  all  parts  of  the  world,  and  1,800  in  this  country  alone,  is  one 
of  the  most  imposing  examples  of  a  successful  manufacturer's 
chain. 

2.  Chains  which  sell  through  their  own  retail  stores  and  also 
through  independent  retailers  or  agencies.  Most  manufacturers' 
chains  fall  under  this  classification.  The  W.  L.  Douglas  Shoe 
Co.,  the  Regal  Shoe  Co.,  A.  G.  Spalding  &  Bros.,  etc.,  are  examples 
of  this  type.  Naturally  such  a  system  involves  much  more 
accounting  than  the  first  type.  It  is  in  cases  like  this  that  goods 
are  billed  to  member  stores  at  wholesale,  rather  than  retail  prices, 
to  avoid  a  double  system  of  accounting  at  headquarters. 

3.  There  is  the  further  type  of  manufacturers'  chain,  small  in 
size,  which  is  not  designed  primarily  for  retail  outlets.     The 


THE  MANUFACTURER'S  CHAIN  323 

Gotham  Hosiery  Co.  is  an  example  of  this  type.  Sales  for  1921 
through  its  three  retail  stores  in  New  York  amounted  to  over  a 
million  and  a  half  dollars.  In  the  tiny  shop  on  West  Thirty- 
fourth  Street  there  are  eighteen  sales  girls  placed  as  close  to  each 
other  as  they  can  stand.  Nothing  is  sold  but  Gotham  Hosiery 
and,  as  there  is  little  looking  around  or  pricing,  the  turnover  is 
exceedingly  rapid.  Warner  Brothers  Co.,  makers  of  Redfern 
corsets,  have  stores  in  New  York  City,  Chicago,  and  San  Fran- 
cisco. The  Sherwin  Williams  Co.,  paint  manufacturers,  have 
retail  stores  in  many  cities. 

Many  manufacturing  companies  are  run  under  the  committee 
plan  where  the  heads  of  the  organization,  in  conference,  map  out 
procedure  and  development.  Naturally  they  attempted  to 
extend  this  plan  to  the  retail  stores,  but  found  it  did  not  work. 
Chain  stores  need  centralized  control,  chiefly  because  they  them- 
selves are  so  scattered  that  there  must  be  some  well-defined  bond 
holding  them  to  the  central  organization.  A  committee  is  too 
impersonal.  It  is  too  cumbersome.  It  takes  too  long  to  function. 
It  cannot  keep  pace  with  local  conditions.  Every  chain  should 
have  some  sort  of  executive  in  charge  who  knows  his  business  and 
who  is  in  direct  control  of  an  able  staff  of  subordinates. 

Some  manufacturers'  chains  have  solved  the  problem  of 
organization  by  forming  a  separate  holding  and  operating  com- 
pany to  manage  their  retail  outlets.  Whatever  form  of  control 
is  chosen,  it  should  always  be  borne  in  mind  that  the  selling  and 
the  manufacturing  must  be  divorced  and,  that  if  either  is  to 
furnish  initiative  for  change  in  policy,  this  should  preferably  come 
from  the  retail  end  as  being  closer  in  touch  with  public  demand. 

The  Product. — R.  A.  Bruce  says  that,  for  chain  store  purposes, 
products  must  be  divided  into  two  classes: 

1.  Convenience  goods  which  can  be  sold  without  disturbing  existing 
distribution  to  any  great  extent. 

2.  Articles  demanding  personal  service  which  will  interfere  with  existing 
trade  relationships. 

In  the  first  case  it  is  perfectly  possible  for  Page  &  Shaw  to  have 
a  retail  store  of  its  own  in  the  middle  of  a  block  and  to  have 
agencies  in  two  drug  stores,  one  at  each  end  of  the  block.  The 
reason  is  that  candy  is  a  convenience  article  and  people  generally 
buy  it  wherever  they  are. 


324  CHAIN  STORES 

In  the  second  case  people  will  go  out  of  their  way  to  get  a 
particular  article.  The  manufacturers  of  shoes  operating  retail 
stores  and  also  giving  agencies  are  up  against  this  problem. 

The  product  can  be  considered  in  a  different  light,  however.  If 
the  manufacturer  makes  a  product  which  is  extremely  limited  in 
its  use,  such  as  a  door-hinge,  it  is  quite  evident  that  a  chain  of 
retail  stores  would  not  be  worthy  of  serious  consideration.  His 
logical  outlet  is  the  dealer  and  his  logical  appeal  to  the  public 
through  advertising. 

But  in  the  case  where  the  product  itself  is  the  entire  output  of 
an  industry  such  as  shoes,  hats,  shirts,  clothing,  etc.,  it  is 
equally  evident  that  the  product  is  fitted  for  sale  through  a 
manufacturers'  chain.  That  is,  as  far  as  the  product  itself  is 
concerned,  there  is  sufficient  demand  from  the  public  to  support 
a  store  dealing  exclusively  in  this  product. 

The  Agency  Problem. — To  what  extent  can  the  manufacturer 
compete  with  himself?  When  the  field  is  already  supposedly 
occupied  by  retailers  handling  his  products,  is  it  possible  for  him 
to  start  his  own  stores  in  such  a  way  as  to  keep  the  loyal  coopera- 
tion and  help  of  existing  agencies?  This  is  a  problem  the  indivi- 
dual manufacturer  must  solve  in  his  own  way.  It  is  difficult  to 
see  how  a  certain  amount  of  friction  can  be  avoided.  A  retailer 
will  naturally  resent  the  entrance  of  the  company  into  his  district 
with  a  retail  store  of  its  own.  He  feels  that  it  is  going  to  affect 
his  business  adversely.  Whether  it  does  or  not  depends  largely 
upon  the  company  and  the  assistance  it  gives  the  agency  when 
compared  with  the  assistance  rendered  its  own  stores. 

The  Regal  Co.  for  a  long  time  maintained  two  separate  policies 
in  regard  to  its  own  stores  and  its  agencies.  Then  it  was  dis- 
covered that  customers  had  very  often  to  pay  more  for  their 
shoes  at  the  agencies  than  at  the  company's  stores.  There  was  a 
very  thorough  investigation  of  the  whole  problem  and  it  was 
found  that  the  agencies  were  getting  little  or  no  cooperation. 
As  a  result  the  policy  of  the  company  was  reversed.  The  agencies 
were,  to  a  certain  extent,  taken  into  the  company.  Their  own 
store  managers  were  ordered  to  give  the  fullest  assistance  to 
the  local  agency.  The  district  managers  were  told  to  give  the 
problems  of  the  agency  the  same  attention  they  would  give  the 
nroblems  of  the  store  managers.     An  attempt  was  made  to  make 


THE  MANUFACTURER'S  CHAIN  325 

the  agencies  feel  the  company  was  working  with  them  rather 
than  in  competition  with  them.  The  most  important  concession 
was  a  leveUng  of  price  charges  so  that  agencies  obtained  shoes  at 
exactly  the  same  price  at  which  they  were  delivered  to  the  com- 
pany's own  stores.  Furthermore,  the  company's  stores  were 
made  warehouses  from  which  agencies  could  draw  in  emergency 
for  supplies  of  shoes,  thus  avoiding  the  necessity  of  waiting  until 
the  company's  nearest  warehouse  could  ship  the  goods,  and 
perhaps  saving  many  sales.  A  policy  such  as  this  is  bound  to 
work  out  to  the  benefit  of  both  parties,  since  it  is  based  upon 
team-work  and  cooperation  rather  than  competition. 

The  Personnel. — As  in  the  case  of  the  normal  retailers'  chain, 
the  personnel  is  the  weak  link.  The  company  must  pay  high  to 
secure  a  good  man.  He  should  be  given  a  share  in  the  company 
if  possible.  It  is  difficult  to  get  good  men  because,  in  the  upper 
ranks,  very  few  chain  executives  shift  from  one  company  to 
another.  Their  interest  in  profits  keeps  them  attached  to  one 
concern.  When  a  manufacturer  starts  a  chain  of  stores,  he  is 
naturally  prompted  to  look  outside  for  his  men.  Whereas  a 
retail  chain  can  start  with  one  link  and  train  up  men,  he  must 
secure  men  trained  elsewhere,  especially  since  he  has  not  the 
requisite  retail  knowledge  to  train  them  himself. 

When  the  company  has  secured  a  man  whom  it  believes  capable 
of  taking  full  charge,  he  should  be  allowed  to  have  considerable 
latitude.  He  knows,  supposedly,  a  great  deal  more  about  the 
problems  the  manufacturer  will  have  to  encounter  in  his  new 
undertaking  than  anyone  in  the  company.  If  the  company  has 
chosen  its  man  wrongly,  it  can  dismiss  him  and  choose  another 
man,  and  this  is  far  less  harmful  than  hampering  him  at  every 
step  with  commands  and  suggestions.  One  good  plan  would  be 
to  appropriate  a  certain  amount  of  money  and  then  tell  the 
retail  manager  to  go  ahead  on  that  basis,  rendering  strict  account 
of  expenditures  at  frequent  intervals. 

What  has  been  said  in  other  chapters  in  regard  to  the  personnel 
will  apply  equally  well  here.  To  all  intents  and  purposes,  the 
member  store  is  run  exactly  as  the  member  store  of  a  retail  chain. 
There  is  a  manager  with  a  share  in  the  profits  and  clerks  who 
probably  receive  some  sort  of  a  bonus  for  sales. 

The  manufacturer  may  regard  it  as  necessary  to  maintain  one 


326  CHAIN  STORES 

or  more  stores  at  a  loss,  because  of  competition  or  because  it  is 
desired  to  open  up  new  territory,  etc.  In  this  case  some  arrange- 
ment should  be  made  by  which  the  manager  of  the  local  store 
which  is  not  earning  money  should  be  recompensed  proportion- 
ately to  his  effort.  This  is  especially  important  as  it  would  pay 
to  have  a  good  man  located  at  this  point. 

The  Operation  of  Manufacturers'  Chains, — It  may  be  of  value 
to  present  some  of  the  aspects  of  chain  store  operation  as  applying 
specifically  to  the  manufacturer's  problem.  These  may  be 
grouped  under  the  following  headings: 

1.  Territory. 

2.  Purchasing. 

3.  Accounting  control. 

4.  Sales  policies. 

5.  Advertising. 

1.  Territory. — Every  manufacturers'  chain  is  a  potential 
national  chain,  although,  in  actual  fact,  the  retail  stores  may  be 
grouped  within  a  small  radius  and  the  rest  of  the  country  covered 
by  agencies.  Yet  by  means  of  these  agencies  the  company  has 
paved  the  way  for  the  installation  of  a  retail  store  of  its  own 
whenever  it  considers  conditions  warrant. 

The  best  results  are  often  secured  through  retailing  the  entire 
production  through  the  manufacturer's  own  stores.  The 
Singer  Sewing  Machine  Company,  for  instance,  the  most  con- 
spicuous example,  has  divided  the  United  States  into  territories, 
which  are  in  turn  sub-divided  into  one  hundred  or  more  divisions. 
The  company  maintains  outside  salesmen  as  well,  who  turn  all  the 
business  they  secure  into  the  store  covering  the  territory  in  which 
the  sale  is  made. 

The  Regal  Shoe  Co.  has  six  selling  districts,  determined  by 
volume  of  sales  rather  than  extent  of  territory.  It  is  divided 
into  the  Southern,  the  Northern,  the  Pacific,  the  Middle  West, 
and  the  two  Metropolitan  divisions  of  New  York. 

This  question  of  territory  is  much  more  important  in  the  case 
of  the  manufacturers'  chain  because  of  the  previously  discussed 
agency  question  and  the  nature  of  the  product.  On  the  one 
hand  it  is  necessary  to  secure  the  loyal  cooperation  of  the  agencies 
and  on  the  other  the  efficient  operation  of  the  retail  stores. 


THE  MANUFACTURER'S  CHAIN  327 

2.  Purchasing. — Purchasing,  as  such,  does  not  exist  for  the 
retail  branch  of  the  manufacturers'  chain.  All  goods  are  invoiced 
to  the  retail  stores  at  cost  of  manufacture  by  the  company. 
Thus,  one  great  source  of  chain  economy  is  at  one  stroke  removed. 
The  purchasing  function  is  a  mere  choice  of  lines  to  be  stocked  by 
local  managers.  As  hitherto  explained,  this  slows  up  the  entire 
process  of  transferring  the  purchasing  desires  of  the  public  to 
the  source  of  supply.  Consequently,  a  manufacturing  chain  is  far 
more  likely  to  be  caught  with  large  inventories  by  sudden  shifts 
in  buying  habits  and  style  or  perhaps  of  periods  of  prosperity 
or  depression. 

3.  Accounting  Control. — Accounting  is  just  as  necessary  in 
the  manufacturers'  chain  field  as  in  the  retail  chain  field.  It 
is,  however,  more  difficult  to  obtain  the  same  accurate  results 
if  agencies  are  used  for  partial  distribution.  But  all  manufac- 
turers with  retail  chain  stores  recognize  the  necessity  of  scientific 
statistical  control  both  for  purposes  of  sales  analysis  and  for 
individual  store  efficiency. 

4.  Sales  Policies. — When  a  manufacturer  sells  through  agen- 
cies, his  desire  is  to  sell  the  product.  The  dealer  is  important 
only  through  the  volume  of  sales  of  the  company's  product. 
When  the  manufacturer  runs  a  retail  store  or  chain  of  stores,  the 
individuality  of  the  store  takes  on  prime  importance.  What  an 
agent  does  reflects  on  the  agent  more  than  on  the  company. 
What  one  of  the  company's  own  stores  does  reflects  directly  on 
the  company  itself.  Thus  the  sales  policy  must  be  modified  to 
take  into  consideration  the  retail  links. 

The  great  sales  problem  is  the  question  of  price.  Must  the 
company's  own  stores  sell  at  the  same  price  as  the  agencies? 
Suppose  there  is  an  overstock  of  goods.  Should  agencies  and 
stores  combine  in  sales  effort  to  clear  out  these  stocks?  Unques- 
tionably it  is  very  difficult  for  the  manufacturers'  chain  to  reduce 
prices.  Various  expedients  are  tried.  Merchandise  is  shifted 
from  stores  where  it  will  not  sell  to  stores  where  it  will.  More 
general  still  is  the  practice  of  giving  a  premium  to  the  salesman 
on  sales  of  slow-moving  goods. 

Price  in  a  manufacturer's  chain  is  a  local  question  far  more 
than  in  the  case  of  the  retail  chain.  For  example,  competition 
in  one  city  may  be  especially  strong,  due  to  local  manufacturing 


328  CHAIN  STORES 

and  local  retailing.  The  problem  here  is  quite  different  from 
that  of  another  city  where  competition  may  be  weak  and  sales 
easy  to  make.  A  price-cut  is  generally  a  last  resort,  after  all 
other  methods  have  failed.  However,  it  may  be  essential  in 
case  of  an  over-supply  of  seasonal  goods. 

A  manufacturer  does  not  sell  a  number  of  brands;  he  sells  one 
brand  and  that  his  own.  All  sales  effort,  therefore,  is  concen- 
trated on  establishing  the  preeminence  of  this  particular  brand 
over  others  in  the  field.  In  a  retail  chain,  if  one  manufacturer's 
brand  fails  to  sell,  it  can  immediately  be  discarded,  but  the 
manufacturer  who  runs  his  own  retail  store  must  make  his  brand 
successful. 

5.  Advertising. — The  general  advertising  policy  of  the  manu- 
facturer's chain  must  be  made  up  with  reference  to  the  following 
considerations : 

(a)  The  interests  of  the  retail  stores. 
(6)   The  interests  of  the  agencies. 

Many  of  the  manufacturers'  shoe  chains  do  national  advertis- 
ing in  the  interests  of  both.  When  it  comes  to  local  advertising, 
there  has  been  some  reluctance  on  the  part  of  the  local  managers 
to  run  advertising,  matter  which  would  help  the  agencies  as  well 
as  themselves.  This  view,  an  essentially  narrow  one,  has  been 
generally  discarded  in  favor  of  the  policy  that  whatever  helps 
the  sales  of  the  product  will  eventually  help  everybody  concerned. 

Conclusions. — The  retailer  who  starts  a  chain  of  stores  is 
beginning  at  the  bottom,  and  whatever  manufacturing  operations 
he  may  eventually  take  up,  they  are  always  in  response  to  a 
direct  demand  from  the  retail  outlets,  and  an  advance  indication 
that  the  products  manufactured  will  be  disposed  of  immediately 
at  a  profit. 

The  manufacturer  who  starts  a  chain  of  retail  stores  in  the 
endeavor  to  make  his  distribution  more  direct,  or  more  uniform, 
or  for  any  other  reason,  is  commencing  at  the  top  and  working 
down.  He  has  to  create  a  market  for  his  product  which  is  already 
being  manufactured,  and  he  must  do  this  against  strong  competi- 
tion. He  should  choose  an  executive  capable  of  handling  the 
retail  end  of  his  business  who  will  see  to  the  choice  of  sites,  the 


THE  MANUFACTURER'S  CHAIN  329 

building  up  of  a  personnel,  sales  policies,  etc.  And  the  manufac- 
turer is  always  hampered  more  or  less  by  the  inelasticity  of  the 
product  he  manufactures  to  shifting  demand,  a  factor  which  the 
retail  chain  capitalizes  immediately. 

Whether  a  manufacturer  should  start  a  chain  of  retail  stores 
is  an  individual  question,  depending  on  capital  available,  and  a 
careful  study  of  all  the  problems  brought  forward  in  this  chapter. 


CHAPTER  XXII 
THE  GROCERY  CHAIN 

The  chain  store  idea  in  this  country  originated  in  the  grocery- 
field  and  it  is  but  natural  that  it  should  there  have  its  strongest 
hold  even  if  we  do  not  take  into  consideration  that  the  selling 
of  food  products  is  our  most  important  retail  activity.  The 
business  of  the  average  independent  grocer  is  not  large  enough 
and  in  many  cases  never  can  be  large  enough  to  develop  maximum 
efficiency  in  purchasing,  merchandising,  and  accounting.  Thus 
at  the  start  the  chain  grocery  store  occupies  a  favored  position 
in  the  way  of  competition.  Some  chain  grocers  do  not  even  con- 
sider the  independent  competition  but  only  that  of  other  chains. 

Although  there  are  no  exact  figures,  it  is  estimated  that  there 
are  about  4,000  wholesale  and  350,000  retail  grocers  in  the  Uni- 
ted States.  Alfred  H.  Beckmann,  Secretary-Treasurer  of  the 
National  Chain  Grocers'  Association,  is  authority  for  the  state- 
ment that  there  are  less  than  seventy-five  responsible  chain 
grocery  store  organizations,  operating  not  over  50,000  stores. 
Taking  into  consideration  the  fact  that  only  one  seventh  of  the 
total  retail  grocers  are  made  up  of  chain  links,  there  seems  to  be 
a  broad  field  still  undeveloped.  Naturally,  with  the  spread  of 
the  chain  stores  and  the  elimination  of  the  weaker  independent 
stores,  the  number  of  wholesale  grocers  will  also  decline,  since 
the  chain  organization  takes  upon  itself  the  functions  of  the 
jobber,  that  is,  the  purchasing  from  the  manufacturer,  the 
warehousing,  and,  incidentally,  the  profit. 

The  metropolitan  districts  have  served  best  up  to  this  point 
for  grocery  chain  development.  Within  a  few  years  they  have 
advanced  from  supplying  12  per  cent,  of  the  retail  grocery  trade 
to  supplying  one  half  of  it.  In  Philadelphia,  which  is  the  strong- 
hold of  the  chain  grocery  store,  the  percentage  is  even  higher. 

The  Chain  Grocery  Field. — There  are  several  types  of  so-called 
grocery  chains.  We  have  the  regular  chain  grocer  handling  all 
brands  asked  for  by  customers  and  selling  a  private  brand  in 

330 


THE  GROCERY  CHAIN  331 

competition,  we  have  the  self-service  type  handUng  nationally 
advertised  goods  only,  and  we  have  the  restricted-products 
type,  handling  tea,  coffee,  butter,  eggs,  and  a  few  dry  staples. 
Last,  we  have  a  few  quality  grocery  chains,  giving  delivery, 
allowing  credits  etc.,  which  are  frowned  upon  by  the  cash-and- 
carry  type. 

1.  The  regular  grocery  chain. — In  most  respects  this  type  of 
grocery  store  is  no  different  from  its  independent  competitor. 
It  carries  approximately  the  same  products,  but  not  so  many 
lines,  there  are  no  "shelf  warmers,"  and  the  tendency  is  always 
towards  packaged  goods  where  possible.  In  methods,  of  course, 
the  chain  grocery  is  infinitely  superior  to  the  independent;  the 
same  is  generally  true  of  location.  This  type  of  chain  store 
normally  does  some  manufacturing  or  distributing  on  its  own 
account.  The  larger  chains  do  a  great  deal  of  their  manufac- 
turing; the  smaller  chains  concentrate  on  some  particular  line, 
such  as  breadstuffs. 

2.  The  self-service  type. — This  is  a  new  comer  to  the  chain 
field,  and  long  enough  time  has  not  yet  elapsed  to  demonstrate 
the  exact  possibilities  inherent  in  such  a  scheme.  It  seems 
better  fitted  for  the  grocery  field  than  any  other,  and,  as  pointed 
out  elsewhere,  it  is  more  adapted  for  downtown  sites  than  for 
suburban.  These  stores  sell  only  nationally  advertised  goods, 
following  out  their  policy  of  handling  only  the  best  known 
articles  and  products. 

3.  The  restricted-products  type. — A  great  many  of  these 
stores  started  out  as  retailers  in  teas  and  coffees  and  found  it 
convenient  to  take  on  additional  lines,  butter,  eggs,  beans,  etc. 
In  general,  the  stock  of  the  chain  grocery  store  is  more  restricted 
in  number  of  items  than  the  independent  store,  but  the  tendency 
seems  to  be  to  enlarge  the  line  of  goods  carried  once  it  is  proved 
conclusively  that  there  is  a  public  demand  for  the  new  products. 

4.  Quality  chains. — This  type  of  chain  started  from  a  single 
store  always  and  then  acquired  branches.  In  many  cases  the 
management  still  dislikes  the  word  chain  as  applied  to  this  or- 
ganization because  it  is  felt  that  a  chain  denotes  cash-and-carry, 
which  is  precisely  what  they  seek  to  avoid.  As  is  natural,  these 
chains  are  comparatively  small,  first,  because  their  class  of 
trade  is  limited  to  those  with  money,  and  second,  because  it  is 


332  CHAIN  STORES 

so  much  more  difficult  to  standardize  the  individual  service  on 
which  the  trade  of  this  type  of  chain  is  founded. 

Rarely,  as  in  the  case  of  Chas.  M.  Decker  &  Bros.,  both 
cash-and-carry  and  service  stores  are  operated  by  the  same 
management. 

The  Grocery  Chains. — In  the  last  ten  years  or,  in  fact,  from  1910 
onward,  there  has  been  tremendous  growth  in  the  chain  store 
organizations.  There  was  a  long-felt  want  in  the  community  to 
be  filled.  The  prejudice  against  the  chain  store  had  almost 
vanished.  When  the  war  broke  out,  and  prices  rose  to  unprece- 
dented heights,  and  even  staple  commodities  were  scarce,  the 
chain  store  progress  was  rapid.  In  the  short  space  of  three  years, 
from  1914  to  1917,  the  Great  Atlantic  &  Pacific  Tea  Co.  opened 
over  twenty-two  hundred  new  stores. 

Contrary  to  the  drug  field,  where  the  Liggett  Co.  is  far  in  the 
lead,  in  the  grocery  field  the  different  chains  are  strung  out  with 
the  Great  Atlantic  &  Pacific  Tea  Co.  in  the  lead,  the  American 
Stores  Co.  second,  and  the  Kroger  Grocery  &  Baking  Co.  third. 

The  following  list  gives  an  idea  of  the  more  important  grocery 
chains  operating  at  this  time,  although  this  list  may  be  incom- 
plete or  inaccurate  as  far  as  some  chains  may  be  concerned,  owing 
to  the  rapid  growth  and  the  difficulty  of  obtaining  information. 
The  majority  of  this  list  was  compiled  by  the  National  Chain 
Grocers'  Association. 

List  of  Chain  Grocery  Concerns 

Approximate 
Number  of 
Name  Headquarters  Stores 

Alabama 
Hill  Grocery  Co Birmingham  71 

Arizona 
Arizona  Grocery  Co Phoenix  4 

Arkansas 
Cox's  Cash  Stores Little  Rock  38 

California 

H.  G.  Chaffee  Co Los  Angeles  66 

Federal  Grocery  Co Los  Angeles  90 

Sam  Seelig  Co Los  Angeles  106 

Von's  Grocery  Stores Los  Angeles  24 

Heller's,  Inc San  Diego  20 

Colorado 

Snodgrass  Food  Co Trinidad  -  25 

Connecticut 

Davey  Bros Bridgeport 

Logan  Bros Bridgeport  41 

District  of  Columbia 
Sanitary  Grocery  Co Washington  170 


THE  GROCERY  CHAIN  333 

Approximate 
Number  ok 

Name                                                     Headquarters  Stores 

Florida 

Whiddon  Cash  Stores Jacksonville  29 

Georgia 

L.  W.  Rogers  Co Atlanta  145 

Indiana 

Standard  Tea  &  Grocery  Co Indianapolis  85 

Illinois 

Consumers  Sanitary  Coffee  &  Butter  Co.  Chicago  70 

Logan  Tea  Co Chicago  30 

National  Tea  Co Chicago  369 

Iowa 

Benner  Tea  Co Burlington  17 

Kentucky 

The  Quaker  Maid,  Inc Louisville  78 

Maryland 

Knoblock  Bros Baltimore  25 

C.  D.  Kenny  Co Baltimore  70 

J.  W.  Crook Baltimore  110 

Massachusetts 

John  T.  Connor  Co Boston  307 

E.  E.  Gray  Co Boston  150 

M.  O'Keeffe,  Inc Boston  330 

The  Ginter  Co Boston  150 

Country  Club  Stores Boston  62 

Economy  Grocery  Stores Cambridgport  53 

H.  P.  Hood  &  Sons  Co Charlestown  46 

A.  H.  Phillips,  Inc Springfield  96 

Michigan 

C.  F.  Smith  Co Detroit  240 

Wright  &  Parker Detroit  187 

Missouri 

Union  Pacific  Tea  Co.  of  Missouri Kansas  City  50 

Montana 

J.  M.  Sawyer  Co Billings 

New  Jersey 

National  Grocery  Co Jersey  City  375 

Great  Atlantic  &  Pacific  Tea  Co Jersey  City  7 ,  000 

Eagle  Grocery  Co Jersey  City  184 

Mutual  Grocery  Co Newark  62 

American  Food  Co Newark  56 

Aaron  Ward  &  Sons Newark  26 

Lehman  &  Co Newark  56 

Chas.  M.  Decker  &  Bros.  Thrift  Stores, 

Inc Orange  161 

Great  Eastern  Stores  Co Paterson  60 

New  York 

National  Economy  Stores  Co Auburn  50 

H.  C.  Bohack  Co Brooklyn  210 

Thomas  Roulston,  Inc Brooklyn  400 

Globe  Grocery  Stores,  Inc Brooklyn  222 

Grand  Union  Tea  Co Brooklyn  197 

S.  M.  Flickinger  Co Buffalo  205 

Thrift  Grocery  Stores,  Inc Buffalo  87 

E.  T.  Donahay  Co Buffalo  25 

John  H.  Kamman  Co Buffalo  30 

A.  F.  Beckmann  &  Co.  Inc New  York  City  63 

James  Butler,  Inc New  York  City  629 


334  CHAIN  STORES 

Approximate 
Number  ok 

Name                                                  Headquarters  Stores 
New  York  (Continued) 

Gristede  Bros.  Inc New  York  City  64 

Progressive  Grocery  Stores,  Inc New  York  City  60 

Daniel  Reeves,  Inc New  York  City  297 

Atlas  Stores,  Inc New  York  City  49 

Andrew  Davey,  Inc New  York  City  179 

L.  Oppenheimer,  Inc New  York  City  37 

Park  &  Tilford New  York  City  11 

Schaffer  Stores  Co Schenectady  31 

Community  Stores  Co Syracuse  21 

Ohio 

F.  W.  Albrecht  Grocery  Co Akron  63 

A.  B.  Flory Canton  40 

Kroger  Grocery  &  Baking  Co Cincinnati  997 

Foltz.  Grocery  &  Baking  Co Cincinnati  68 

Fisher  Bros.  Co Cleveland  132 

Matt.  Smith  Grocery  Co Cleveland  101 

Thrift  Grocery  Co Toledo  63 

Oregon 

Skaggs  United  Stores Portland  33 

Twentieth  Century  Stores Portland  24 

Pennsylvania 

Shaffer  Stores  Co Altoona  30 

Almar  Tea  Co Philadelphia  78 

American  Stores  Co Philadelphia  1 ,  276 

Huey  &  Matthews Pittsburgh  72 

P.  H.  Butler  Co Pittsburgh  194 

S.  B.  Charters  Grocery  Co Pittsburgh  68 

Donahoe's Pittsburgh  33 

Union  Supply  Co Pittsburgh  58 

Rhode  Island 

Mayflower  Stores  Co Providence  121 

Nicholson-Thackeray  Co Pawtucket  60 

Tennessee 

Parham-Lindsay  Grocery  Co Chattanooga  52 

Mr.  Bower's  Stores,  Inc Memphis  50 

H.  G.  Hill  Co Nashville  92 

Texas 

Star  Cash  Stores  Co Dallas  48 

Virginia 

D.  Pender  Grocery  Co Norfolk  100 

Jamison's  Chain  Grocery  Stores Roanoke 

Washington 

The  Marr  Stores Spokane  24 

Groceteria  Stores  Co Seattle  29 

Wisconsin 

Union  Food  Stores  Co Milwaukee  51 

A  glance  at  the  above  list  shows  that  in  the  grocery  line, 
far  more  than  in  the  drug  line,  the  chain  idea  has  gained  great 
impetus.  As  soon  as  a  chain  grocery  obtains  over  25  member 
stores,  it  is  placed  in  a  position  of  advantage,  both  as  to  purchas- 
ing economies  and  the  inevitable  publicity  attached  to  the 
activities  of  the  larger  chains. 

The  Great  Atlantic  &  Pacific  Tea  Co. — There  was  but  one 
Great  Atlantic  &  Pacific  Tea  Co.  store  in  1859,     To  George  H. 


THE  GROCERY  CHAIN  335 

Hartford,  who  died  in  1917,  is  due  the  credit  for  initiating  the  first 
successful  retail  grocery  chain.  The  idea,  as  conceived  by  him, 
was  carried  out  and  is  still  being  carried  out.  Stores  are  added 
only  as  they  seem  warranted.  Yet  owing  to  the  great  size  of  the 
chain,  the  new  links  come  with  surprising  frequency.  A  glance 
at  the  table  below  shows  increase  in  number  of  stores  operated 
since  1910. 


1910 

372 

1916 

2,866 

1911 

404 

1917 

3,232 

1912 

447 

1918 

3,799 

1913 

628 

1919 

4,246 

1914 

1,001 

1920 

4,508 

1915 

1,726 

1921 

4,744 

From  372  stores  to  4,744  stores  in  11  years  is  a  notable  achieve- 
ment, even  considering  that  it  is  a  chain  of  retail  stores.  Further- 
more, the  company  does  a  great  amount  of  business  in  foodstuffs. 
In  1919,  it  sold  50,000,000  pounds  of  coffee;  35,000,000  pounds  of 
butter;  20,000,000  dozen  eggs;  150,000,000  pounds  of  flour; 
200,000,000  pounds  of  sugar;  300,000,000  pounds  of  potatoes; 
68,400,000  cans  of  milk;  200,000,000  cakes  of  soap.  The  com- 
pany employs  approximately  17,000  men. 

The  Great  Atlantic  &  Pacific  Tea  Co.  is  the  only  great  national 
grocery  chain.  It  has  succeeded  in  solving  sectional  difficulties 
and  in  establishing  its  stores  in  all  corners  of  the  United  States. 
After  experimenting  with  various  policies,  it  abandoned  credits 
and  deliveries  in  1912  and  later  on  adopted  the  policy  of  selling 
products  asked  for  by  the  customers  but  of  manufacturing  as 
much  as  possible  of  its  own  products  to  compete  either  in  price 
or  in  unit  volume  of  the  product. 

Other  Chains. — The  American  Stores  Co.,  as  explained  else- 
where, is  a  combination  of  several  smaller  chains  to  form  the 
second  largest  grocery  chain  in  the  country.  But  the  Kroger 
Grocery  &  Baking  Co.  is,  like  the  Great  Atlantic  &  Pacific  Tea 
Co.,  the  creation  of  one  man.  B.  H.  Kroger  in  1884  owned  one 
store  in  Cincinnati,  Ohio,  called  the  Great  Western  Tea  Co.  In 
1885,  he  had  three  stores,  each  located  on  what  he  considered 
a  profitable  site.  At  an  early  stage  in  the  development  of  his 
chain,  he  adopted  two  policies. 


336  CHAIN  STORES 

1.  To  buy  direct  in  so  far  as  possible. 

2.  To  sell  his  products  at  as  low  a  price  as  was  consistent  with  the  cost 
to  him,  regardless  of  competitors'  prices. 

Needless  to  say,  he  incurred  immediately  the  enmity  of  the 
independent  grocers,  the  jobbers,  and  the  wholesalers,  and  of 
many  manufacturers  who  disliked  seeing  their  prices  cut.  In 
1891  he  had  seven  stores,  and  in  1902  thirty-six. 

As  soon  as  he  had  laid  up  some  money  he  spent  it  in  advertising 
in  newspapers.  The  appeal,  of  course,  was  based  on  low  prices, 
and  this  policy,  also,  was  bitterly  resented  by  his  opponents. 
But  it  allowed  many  of  his  stores  to  turn  their  stock  twenty 
times  a  year,  and  he  continued.  As  he  came  into  contact  with 
middle-men  who  refused  to  sell  as  he  required,  he  turned  them 
down  and  started  manufacturing  on  his  own  account.  He  made 
cake,  candy,  and  canned  goods,  and  put  up  his  own  brand  of 
coffee.  Then  he  bought  fifteen  grocery  stores  at  Dayton,  Ohio, 
and  changed  the  name  to  the  Kroger  Grocery  &  Baking  Co.  In 
1904,  he  bought  a  packing  house  and  made  the  retailing  of  meat 
one  of  his  major  activities,  although  meat  is  not  sold  in  all  stores. 
In  1908,  sixty  stores  were  added  at  one  stroke.  Mr.  Kroger  has 
founded  a  bank  in  Cincinnati,  built  an  interurban  railroad,  and 
owns  a  great  deal  of  real  estate.  And  his  chain  of  stores  keeps  on 
growing.  Not  content  with  cutting  out  wholesalers,  he  has  cut 
out  commission  brokers,  and  is  buying  his  produce  direct  from  the 
farmers  on  a  commission  or  cash  basis. 

The  story  of  the  Kroger  Grocery  &  Baking  Co.  is  typical 
of  many  other  chains.  But  there  are  peculiar  features  in  indivi- 
dual chains.  The  Ginter  Co.,  operating  a  medium-sized  chain  of 
grocery  stores  in  and  around  Boston,  also  operates  a  chain  of 
restaurants  serving  food  at  moderate  prices.  This  venture  has 
proved  very  successful,  both  from  the  point  of  view  of  the 
restaurant  business  and  from  the  publicity  obtained. 

The  Piggly  Wiggly  Co. — In  five  years,  the  business  of  the 
Piggly  Wiggly  Co.  grew  from  nothing  to  $5,000,000  a  year.  In 
1916  the  first  Piggly  Wiggly  store  opened  in  Memphis  and  three 
years  later  Piggly  Wiggly  Stores  Inc.,  was  formed.  This  cor- 
poration acquired  immediately  about  125  stores  out  of  about  three 
hundred  privately-owned  stores  which  were  operating  the  Piggly 
Wiggly  patent.  On  October  1,  1920,  515  stores  were  operating  in 
150  cities  in  28  states,  of  which  the  company  owned  340. 


THE  GROCERY  CHAIN  337 

The  idea  was  invented  and  patented  by  Clarence  Saunders  of 
Memphis,  Tenn.  It  was  to  standardize  everything  down 
to  the  last  degree.  First  the  store  was  standardized,  then  the 
stock,  then  the  personnel,  and  finally  the  customer.  That  is,  the 
customer  has  to  do  the  work  of  picking  out  what  articles  he 
wishes,  thus  saving  the  time  and  labor  of  the  clerk. 

Mr.  Saunders,  as  the  Dry  Goods  Economist  says,  had  experts 
study  handling  and  serving,  with  the  idea  of  eliminating  all  lost 
motion,  decreasing  handling  costs  to  a  minimum,  and  cutting 
out  all  waste.  Thus  the  modern  up-to-date  labor-saving  devices 
for  the  handling  of  goods  are  found  in  the  Piggly  Wiggly  stores. 
Devices  are  arranged  so  that  employees  handle  merchandise  only 
once,  and  porters  and  others  employed  in  the  store  each  have  a 
definite  task  to  do.  Though  they  may  be  in  the  aisles  while  the 
customers  are  passing  through  them,  they  are  forbidden  to  touch 
any  merchandise  or  aid  the  customer  in  selecting  merchandise. 
Their  job  is  standardized.  They  have  so  much  to  do,  no  more, 
no  less,  and  are  forbidden  to  go  beyond  the  work  assigned  to 
them. 

The  management  has  attempted  to  reduce  the  operation  of  the 
individual  store,  as  far  as  possible,  to  a  science  and,  with  this 
view  in  mind,  it  has  formulated  a  complete  set  of  rules  governing 
all  probable  contingencies.  For  example,  if  the  customer  by 
accident  causes  any  damage  the  rule  reads  as  follows: 

"Should  the  customer  inadvertently  or  through  any  other 
cause  knock  from  a  shelf  a  bottle  or  package  of  anything  that 
breaks  and  is  thereby  ruined  for  sale,  and  should  the  customer  or 
any  visitor  do  any  damage  about  the  store  which  is  not  done  with 
malicious  or  wilful  intent,  it  will  be  considered  the  duty  of  the 
employee  who  sees  damage  result  through  action  of  such  customer 
or  person  to  tell  that  person  that  such  a  one  is  not  in  any  wise  to 
blame;  even  should  such  a  person  offer  to  make  payment,  the 
money  must  be  refused  and  customer  made  to  feel  that  such 
accidents  will  happen  sometimes." 

Even  the  number  of  keys  to  the  store  is  mapped  out  in  a  little 
booklet  setting  forth  the  conduct  of  the  stores  and  the  store 
personnel. 

The  Piggly  Wiggly  stores,  as  Mr.  Saunders  says,  are  an  experi- 
ment in  practical  store  psychology.     People  laugh  when  they 

22 


338  CHAIN  STORES 

see  the  name  for  the  first  time,  but  they  are  interested  and  they 
remember  it.  The  next  time  they  go  by,  they  stop  and  make  a 
purchase  and  immediately  cease  laughing.  On  the  shelves  they 
not  only  see  what  they  are  intending  to  buy  but  also  many  other 
things  they  had  not  intended  to  purchase  but  the  sight  of  which 
makes  them  realize  they  would  Kke  to  have  that  particular  item. 
Thus  sales  per  customer  are  increased.  The  basic  principle  of 
the  standardized  store  layout  and  equipment  is  that  each 
customer  must  pass  all  products  for  sale. 

The  Degrees  of  Standardization. — All  grocery  chains  are 
fairly  well  standardized.  But  there  is  a  difference  of  degree. 
It  becomes  such  a  science  in  the  larger  grocery  chains  to  get 
every  possible  penny  that  they  keep  a  check  on  how  much  paper 
and  string  each  store  uses  so  as  to  eliminate  waste.  Also  they 
charge  each  store  with  the  wood  boxes  that  hold  the  canned  goods 
and  allow  credit  of  five  or  ten  cents  a  box  when  boxes  are  returned 
to  the  warehouse. 

The  larger  the  chain,  the  more  the  tendency  towards  standardi- 
zation, due  of  course  to  lack  of  contact  of  management  and 
personnel.  In  the  case  of  inventory,  for  example,  many  chain 
stores  keep  an  almost  exact-to-the-penny  inventory  of  the 
stock  each  store  contains.  These  records  are  so  exact  that,  if 
there  is  a  3^  cent  a  pound  drop  in  the  price  of  navy  beans,  they 
weigh  up  the  beans  in  each  store  and  credit  that  store  for  the 
reduction  on  the  books.  Similarly,  if  beans  go  up  3^  cent,  each 
store  is  charged  with  that  extra  3^  cent  for  every  pound  of  beans 
in  stock.  Working  this  way,  it  is  possible  to  tell  almost  to  a 
penny  whether  the  management  is  getting  every  bit  of  profit  which 
that  store  makes,  or  whether  the  store  manager  is  making  some- 
thing for  himself.  Such  a  microscopic  treatment  of  price  changes 
is  best  suited  for  a  large  chain,  but  in  the  smaller  chains  it  is 
simpler  to  check  up  on  price  changes  no  oftener  than  once  a 
week.  Some  chains  require  weekly  changes  on  staple  goods  and 
intermittent  changes  on  dairy  goods  which  may  vary  considerably 
during  a  period  of  seven  days. 

The  larger  chains  can  afford  to  demand  a  closer  standardization 
of  method  because  they  can  afford  to  operate  the  machinery. 
Every  refinement  in  accounting  necessitates  the  weighing  of 
the  result  to  see  whether  it  justifies  the  expenditure  in  clerk  hire. 


THE  GROCERY  CHAIN  339 

The  small  or  medium-sized  chain  must  adapt  its  standard  practice 
to  its  resources,  just  as  the  independent  store  keeper  cannot 
compete  with  the  chain  store  on  the  ground  of  individual  store 
efficiency  of  operation,  but  must  resort  to  service  to  retain  a 
hold  on  his  customers. 

The  Location. — Generally  the  grocery  store  seeks  the  cheaper 
locations,  but  as  its  chief  hold  is  in  the  residence  districts, 
rents  are  not  so  high,  and  it  can  usually  obtain  locations  near 
the  center  of  business.  Location,  however,  is  one  of  the  essential 
features  of  chain  grocery  operation,  as  great  reliance  is  placed 
upon  the  efficiency  of  the  window  display. 

It  was  discovered  by  experience  that  one  chain  could  locate 
near  another  and  not  cause  any  perceptible  diminution  in  the 
trade  of  either  store.  In  fact,  some  stores  have  claimed  that 
their  business  was  positively  increased.  Relying  on  this  fact, 
some  curious  results  have  happened.  In  some  communities  a 
single  chain  store  has  become  well  established.  A  rival  chain 
wishes  to  establish  a  branch  there,  and  judging  that  the  original 
chain  has  already  done  the  missionary  work  of  prospecting  for  a 
site,  it  establishes  itself  as  closely  as  possible  to  the  original 
chain  store,  sometimes  next  door.  Sometimes  a  third  chain 
follows  and  fixes  itself  near  the  first  two. 

In  one  town  the  original  chain  store  was  located  at  some  dis- 
tance from  the  center  and  the  other  two  chain  stores  settled 
in  close  proximity.  The  .  result  was  that  the  trade  was  not 
sufficient  to  go  round  and  a  fourth  chain  store,  locating  afterwards 
at  the  center,  obtained  the  bulk  of  the  trade.  In  other  words, 
there  is  naturally  a  saturation  point  for  chain  stores  at  a  certain 
location. 

Grocery  chain  stores  do  well  in  suburban  localities,  and  in 
recent  years  have  invaded  quality  locations  with  surprising 
success.  Automobile  trade  has  had  much  to  do  with  this  as  in 
this  case  the  fact  that  the  chain  does  not  deliver  makes  little 
difference.  The  discovery  that  chain  stores  could  prosper  in 
rich  localities  marked  a  new  phase  of  chain  store  development. 

One  point  to  notice  in  regard  to  the  location  of  the  grocery 
chain  store  is  that  it  is  situated  in  many  cases  in  small  com- 
munities supporting  no  other  type  of  chain  enterprise.     In  this 


340  CHAIN  STORES 

respect  it  has  been  the  pioneer.  In  no  other  field  has  the  chain 
idea  been  extended  so  far  as  to  cover  small  communities. 

The  Manufacturer  and  the  Chain  Grocery. — Strangely  enough, 
it  was  a  long  time  before  the  manufacturer  could  be  brought  to 
see  that  his  best  interests  lay  in  cooperating  with  the  chain  store 
instead  of  working  against  it.  He  labored  under  the  mistaken 
impression  that  the  chain  idea  was  only  a  fad  and  that  if  he  openly 
incurred  the  hostility  of  the  wholesale  grocers,  he  would  find 
himself  in  the  long  run  left  out.  Although  wholesalers  origin- 
ally fostered  the  chain  stores,  they  became  their  bitterest  enemies 
as  soon  as  the  chains  began  to  try  to  buy  direct,  and  to  pocket  the 
jobbers'  discount. 

A.  H.  Beckmann,  for  many  years  secretary  of  the  National 
Wholesale  Grocers'  Association,  and  now,  Secretary  of  the 
National  Chain  Store  Grocers'  Association,  has  the  point  of  view 
of  one  who  is  well  acquainted  with  both  sides  of  the  question.  He 
says  that  in  selling  responsible  chain  grocery  store  organizations, 
the  manufacturer  eliminates  a  considerable  overhead  expense 
in  the  cost  of  travelling  salesmen.  The  chain  is  able  to  buy 
carloads  where  the  individually-owned  grocery  can  buy  only  in 
small  quantities. 

Most  manufacturers  recognize  the  economy  of  the  chain  store's 
distribution  both  in  buying  and  selling.  The  so-called  retail 
grocer  must  necessarily  buy  from  the  wholesaler  or  jobber  on 
account  of  his  small  volume  in  buying,  and  his  credit  risk,  which 
the  wholesaler  or  jobber  must  assume.  The  wholesaler  or  jobber 
is  compelled  to  maintain  a  large  sales  force  to  take  care  of  the 
retail  trade,  in  addition  to  which  the  manufacturer  employs 
specialty  salesmen  who  call  on  the  retailer  also,  and  turn  over 
the  orders  taken  to  some  jobber  for  execution,  all  of  which  adds 
to  the  cost  and  for  which  the  consumer  must  pay. 

A  manufacturer  desiring  to  place  his  product  on  the  market 
through  a  chain  of  stores — whether  it  operates  50  or  5,000 
stores — need  send  only  one  representative  to  the  headquarters  of 
the  chain  grocery  store,  where  the  sale  is  consummated,  if  the 
article  has  merit,  and  immediately  distribution  follows  in  all 
stores  operated  by  that  chain.  This  is  a  decided  advertising 
advantage. 

In  large  cities  distribution  by  manufacturers  could  be  handled 
economically  and  it  is  only  a  question  of  time  when  the  larger  ones 


THE  GROCERY  CHAIN  341 

will  have  distributing  organizations  similar  to  the  National 
Biscuit  Co.,  Procter  &  Gamble  Distributing  Co.,  Kirkman  & 
Son,  the  Heinz  Co.,  and  other  manufacturers.  The  jobber  or 
wholesaler  will  develop  into  a  manufacturer  even  more  than  he  is 
now,  or  handle  specialties,  for,  as  the  chain  store  increases,  so  does 
the  wholesaler  or  jobber  decrease. 

The  average  retailer,  or  rather  the  majority  of  small  retailers — 
and  they  are  in  the  majority — have  as  a  rule  little  capital  when 
they  enter  business,  and  the.  wholesale  grocer  extends  a  line  of 
credit  in  addition  to  furnishing  the  opening  stock.  Immediately 
the  retailer  is  established,  he  is  called  upon  by  the  salesmen  of 
other  wholesale  grocers — a  duplication  of  overhead  expense — and 
the  wholesaler,  who  is  really  entitled  to  all  that  retailer's  business, 
finds  his  sales  diminishing  and  is  obligated  to  wait  the  pleasure 
of  the  retailer  for  payments  on  goods  purchased,  ranging  from 
30  to  60  days,  or  even  longer,  further  emphasizing  the  credit  evil. 
Not  less  than  75  per  cent,  of  retail  grocers  require  credit  accommo- 
dation of  the  wholesale  grocer,  while  the  chain  grocer  both  buys 
and  sells  for  cash. 

Conclusions. — Nothing  said  in  the  course  of  this  chapter  should 
lead  the  man  ambitious  to  start  a  chain  of  retail  grocery  stores  to 
think  the  task  is  easy  and  that  all  that  is  necessary  is  to  open  a 
series  of  stores  and  wait  for  profits.  The  reverse  of  the  case 
is  more  often  true.  The  owner  of  a  chain  of  grocery  stores  is 
confronted  with  the  keenest  kind  of  competition,  not  only  for 
trade  but  also  for  sites,  and  in  merchandising  policies.  The  fact 
that  the  competition  is  ordinarily  conducted  on  a  fair  and  square 
basis  does  not  render  it  any  less  formidable. 

There  are  six  fundamentals  for  success  in  this  line,  irrespective 
of  other  factors; 

1.  Sufiicient  capital. 

2.  The  right  location. 

3.  Purchases  direct. 

4.  Economies    in  operation.     Cash-and-carry. 

5.  Well-known,  high-grade  merchandise. 

6.  High  turnover  and  low  margin  of  profit. 


CHAPTER  XXIII 
THE  DRUG  STORE  CHAIN 

Next  to  the  grocery  field,  there  are  more  chains  in  the  drug 
field  than  anywhere  else.  The  chains  are  not  particularly  re- 
markable for  their  size  but  rather  for  their  numbers.  In  1921, 
there  were  303  drug  chains  operating  over  three  stores,  in  all 
1763  stores.  In  1920  there  were  315  chains  but  only  1563  mem- 
ber stores.  This  illustrates  an  evident  tendency  towards  com- 
bination among  the  chains,  a  symptom  which  is  common  to  nearly 
all  types. 

The  chain  store  movement  in  the  drug  field  has  come  com- 
paratively late.  The  difficulties  in  the  way  of  standardizing 
drug  store  operation  were  far  greater  than  in  the  case  of  the 
grocery  or  the  cigar  field.  They  were  even  greater  than  in  the 
case  of  the  five  and  ten  cent  store  field.  Most  of  the  present 
drug  store  chains  have  been  operating  but  a  few  years,  notably 
the  National  Drug  Stores  and  the  United  Retail  Chemists 
Corporation  both  newcomers,  yet  both  among  the  first  ten  in  size. 
The  Liggett  Co.  is  by  far  the  largest  and  bids  fair  to  keep  this 
position  for  some  time. 

Figure  55  shows  the  relative  position  of  the  drug  stores  operat- 
ing 10  links  and  over.  Twenty-one  chains  operate  618  stores 
or  over  a  third  of  the  total  of  stores  operated  by  the  entire  303 
chains.  This  clearly  illustrates  that  the  drug  field  is  yet  essen- 
tially a  small  chain  field.  But  the  fact  that  large  capital  and 
modern  methods  in  the  National  Drug  Stores  and  the  United 
Retail  Chemists  Corporation  have  made  such  rapid  growth 
points  to  a  probable  exploitation  of  the  drug  field  by  chains  to  a 
much  greater  extent  than  at  present. 

Within  a  year  of  its  organization,  the  National  Drug  Stores 
Corporation  had  21  stores  in  operation  and  in  1921  it  had  27. 
Although  most  of  its  stores  are  located  in  New  York  City,  it 
purchased  the  Guilford  chain  in  Rochester,  New  York,  and  has 

342 


THE  DRUG  STORE  CHAIN  343 

stores  in  Massachusetts,  New  Jersey,  Connecticut,  and  Pennsyl- 
vania. 

The  Mykrantz  Co.  was  organized  in  1912  and  at  on(!  time 
had  thirty  stores  in  operation  in  Columbus,  Ohio,  and  its  vicinity, 
but  six  stores  were  closed  during  1921.  The  Dow  Drug  Co.  was 
organized  in  1915  and  now  operates  22  stores.  The  Miller- 
Strong  Co.,  organized  in  1908,  now  has  26  stores  in  Buffalo  and 
surrounding  cities.     The  history  of  the  other  chains  is  similar. 

LlGGETT-NewYork     ?^^^^— ^^^^^— ^^^^^^^^^— 

OWL  -San  Francisco    Xi F*^^^^ 

NATIONAL-NewYork  llESF 

MARSH  ALL-Cleveland  FoE^5* 

MILLER-STRONG-Buffalo  fl^^T 

WALGREEN -Chicago    I^E^P 

MYKRANH-Columbus  1^^— -i 

SUN-Los  Angeles     n^!5" 

THISTLEWAlTE-lndionapolis^^Ff 

DOW- Cincinnati  Vj^H 

UNlTED-NewYork-      ',|P?5" 

STANDARD-CIeveland  'J^ 

SCHOLTZ-MUTUAl-Denver  It^ 

DAY- Akron  '|P3 

SHUMATE'S-SanFrandsco  'l^ 

HARVEYSCAREY-Salatnanca  l^F^ 

COOPERATIVE-Philaddphio  '.^HF  ^  ,g;, 

FREUND-New  Orleans    JiH  C3I9?0 

DETROIT- Detroif        ,'iH 

JACOBS -Atlanta         SC5 

MAY- Pittsburgh         loH 

Fig.  55. — Chart  showing  relative  positions  of  leading  drug  chains  during  1920 

and  1921. 

Expansion  has  come  only  in  recent  years,  even  when  founding 
dated  back  twenty  years  or  more. 

The  Louis  K.  Liggett  Co. — The  Louis  K.  Liggett  Co.,  operating 
229  stores,  and  in  a  fair  way  to  become  a  national  drug  chain,  is 
the  largest  factor  in  the  drug  field.  No  discussion  or  description 
of  this  company  is  possible  without  a  preliminary  account  of  its 
connection  with  the  United  Drug  Co.  This  company  was  formed 
in  1902,  at  a  meeting  in  Boston  of  35  retail  druggists.  Mr. 
Liggett,  the  guiding  spirit  of  the  organization,  who  had  been  a 


344  CHAIN  STORES 

traveling  salesman  for  Chester  Kent  &  Co.,  manufacturers  of 
Vinol  and  other  proprietary  medicines,  had  been  impressed  with 
three  evils  in  the  drug  trade. 

1.  There  was  a  tendency  of  manufacturers  to  force  retailers  to  overstock. 

2.  There  was  substitution  by  the  dealers  of  their  own  preparations  in 
place  of  those  of  proprietary  companies. 

3.  There  was  a  failure  to  maintain  the  manufacturer's  indicated  resale 
price. 

The  original  35  members  drew  up  resolutions  to  the  following 
effect : 

1.  The  company  was  to  manufacture  only  for  stockholders. 

2.  There  was  to  be  only  one  stockholder  in  each  town. 

3.  The  company  was  to  make  and  market  at  the  outset  at  least  100 
remedies,  all  of  which  were  to  be  sold  under  a  single  blanket  trade-mark. 

4.  Six  of  the  100  remedies  were  to  be  advertised  extensively  in  season. 

5.  The  first  lines  to  be  advertised  were  to  be  a  dyspepsia  cure  and  a 
catarrh  cure. 

6.  All  of  the  products,  except  the  advertised  remedies,  were  to  be  sold 
to  the  stockholders  at  such  a  price  as  would  not  net  the  corporation  more 
than  25  per  cent,  on  its  gross  selling  price. 

7.  Each  preferred  stockholder  had  to  purchase  as  much  stock  in  the 
company  as  the  cost  of  the  first  year's  advertising  in  his  city. 

8.  Control  of  the  corporation  was  to  be  in  the  hands  of  the  druggists 
themselves. 

9.  As  long  as  a  stockholder  owned  common  stock,  he  was  to  be  a  perpetual 
agent. 

The  company,  in  addition  to  manufacturing  drugs,  has  been 
interested  in  the  manufacture  of  perfumery,  of  candy,  and  of 
stationery.  Liggett  also  organized  the  Drug  Merchants  of 
America,  a  company  formed  to  purchase  other  goods  than  were 
manufactured  by  the  company  for  use  in  agencies. 

The  Louis  K.  Liggett  Co.  was  organized  in  Boston  in  1907, 
five  years  after  the  foundation  of  the  United  Drug  Co.,  to  relieve 
the  United  Drug  Co.  of  risk  ©f  loss  from  a  controversy  as  to  the 
Boston  agency.  This  dispute  had  originally  started  between 
the  United  Drug  Co.  and  the  Riker-Jaynes  Co.  This  was 
the  beginning.  In  1910  the  Liggett  Co.  had  26  stores  while  the 
Riker-Hegeman-Jaynes    people    controlled    58.     In    1900    the 


THE  DRUG  STORE  CHAIN 


345 


Hegeman  Co,  had  four  stores  in  New  York  and  th(^  Wm.  B. 
Riker  Co.  had  two  stores,  also  in  New  York. 

By  a  process  of  combination  the  Riker-Hcgeman-Jaynes 
people  in  1916  had  operating  107  stores.  In  this  year  the 
Liggett  Co.,  operating  45  stores  at  the  time,  bought  them  out. 
Since  that  time  the  Liggett  Co.  has  expanded  steadily  and  to  its 
policies  and  practices  are  due  in  great  measure  the  present  idea 
of  the  chain  drug  store  as  a  retail  outlet  which  can  sell  almost 
anything. 

Analysis  of  Drug  Chains. — In  1900,  the  14  leading  drug  store 


1900 

1901 

1902 

1903 

1904 

1905 

1906 

1907 

1908 

1909 

1910 

1911 

1912 

1913 

1914 

1915 

1916 

1917 

1918 

1919 

920 

1921 

550 
500 
450 

Swrtt 

/ 

/' 

1 

25 
M 
M 
frt 
111 
147 
UN 

tn 

286 
344 

451 
SOI 

/ 

/ 

400 

XB 

/ 

/ 

350 

906 

y 

300 

^ 

^ 

250 

918 

920 

y 

^ 

200 
150 
100 

50 

n 

■^ 

■^ 

^ 

y 

^ 

^ 

- 

Fig.  56. — Growth  of  fourteen  leading  drug  store  chains. 


chains  of  the  country  operated  only  25  stores,  that  is,  such  of 
them  as  were  in  existence  at  that  time.  In  1921,  these  14  chains 
operated  501  stores,  or  20  times  as  many  as  in  1900.  This  is  a 
fair  rate  of  growth  but  not  when  it  is  considered  what  a  field 
there  still  remains  to  develop.  Of  over  50,000  retail  druggists  in 
the  country  1,763  of  them  are  members  of  chains. 

Chain  drug  stores  have,  as  yet,  confined  themselves  mainly 
to  the  urban  sections,  with  few  attempts  to  cultivate  the  smaller 
towns  and  outlying  sections.  This,  of  course,  is  a  phase  in  all 
chain  development.  Pick  the  easiest  sites  first.  But  in  the 
next  few  years  the  growth  of  the  chain  drug  stores  should  show 
a  tendency  towards  the  smaller  towns  and  a  tendency  also  to 


346  CHAIN  STORES 

drop  some  of  the  strictly  non-drug  lines  which  would  not  prove 
profitable  in  small  communities,  owing  to  the  smaller  turnover. 

Figure  56  shows  in  graphic  form  the  growth  of  the  14  chains  at 
two-year  intervals  The  growth  in  member  stores  went  on  unin- 
terruptedly during  the  period  of  depression  of  1920  and  1921. 
The  figures,  compiled  by  the  Druggists  Circular,  include  the 
following  companies:  The  Louis  K.  Liggett  Co.,  the  Owl  Drug 
Co.,  the  National  Drug  Stores  Corp.,  the  United  Chemists  Corp., 
the  Mykrantz  Co.,  the  Dow  Drug  Co.,  the  Marshall  Drug  Co., 
the  Miller-Strong  Drug  Co.,  the  Sun  Drug  Co.,  the  Standard 
Drug  Co.,  the  Scholtz-Mutual  Drug  Co.,  the  Day  Drug  Co.,  the 
Jacobs  Pharmacy  Co.,  and  the  Peoples  Drug  Stores. 

Figures  furnished  by  the  Druggists  Circular  and  Drug  Store 
Merchandising  form  the  basis  for  an  analysis  which  has  been 
prepared  of  the  extent  of  the  chain  movement  in  the  retailing 
of  drugs.  Drug  chains  with  only  two  stores  have  been  included 
in  this  survey  because  otherwise  a  great  many  towns  would  have 
been  left  out,  and  these  two  store  chains  are  all  larger  chains  in 
embryo  form. 

If  the  number  of  firms  operating  only  two  stores  are  added, 
the  total  number  of  chains  is  more  than  doubled.  While  the 
number  of  chains  operating  three  stores  or  more  is  only  303,  the 
number  of  chains  operating  two  stores  and  more  is  691,  with  a 
total  of  2,627  stores. 

The  names  of  those  chains  operating  ten  or  more  stores  are 
the  only  ones  mentioned.  In  every  other  case  the  name  of  the 
state  and  the  town  where  the  store  operates  is  given,  with  the 
number  of  chains  in  that  town  and  the  number  of  stores  in  each 
chain.  The  great  number  of  chains  with  but  two  stores  gives 
food  for  thought.  It  shows  that  a  great  many  of  the  smaller 
retailers  are  beginning  to  take  advantage  of  the  chain  idea. 

A  much  fuller  analysis  of  the  situation  would  be  necessary 
than  is  given  here,  for  any  person  seriously  contemplating 
establishing  a  chain  of  drug  stores  throughout  the  country,  but 
the  following  figures  will  give  a  fairly  general  idea  of  the  situation 
in  the  country  as  a  whole  and  afterwards  in  the  various  cities 
and  towns. 

When  #  appears  before  any  name  it  means  that  the  chain 
operates  stores  in  other  places  than  where  it  is  credited. 


THE  DRUG  STORE  CHAIN 

Summary  of  Drug  Store  Chains 


347 


State 


No.  of  chains      Total  stores 


Alabama 

Arkansas 

California 

Colorado 

Connecticut 

Florida 

Georgia 

Idaho 

Illinois 

Indiana 

Iowa 

Kansas 

Kentucky 

Louisiana 

Maine 

Maryland 

Massachusetts . .  . . 

Michigan 

Minnesota 

Mississippi 

Missouri 

Montana 

Nebraska 

Nevada 

New  Jersey 

New  York 

North  Carolina.  . . 
North  Dakota. . .  . 

Ohio 

Oklahoma 

Oregon 

Pennsylvania 

Rhode  Island 

South  Carolina.  .  . 

Tennessee 

Texas 

Utah 

Vermont 

Virginia 

Washington 

Washington,  D.  C 
West  Virginia.  .  .  . 
Wisconsin 

Total 


4 

4 

34 

9 

8 

3 

16 

2 

65 

21 

8 

5 

18 

18 

1 

13 

28 

48 

22 

3 

34 

2 

5 

1 

12 

75 

6 

1 

51 

14 

3 

57 

9 

4 

11 

19 

5 

1 

6 

15 

12 

7 

11 

691 


12 
12 
175 
37 
28 
12 
61 

9 
219 
97 
32 
13 
50 
59 

2 

33 

84 

154 

63 

8 
97 

6 
17 

3 

28 

417 

17 

6 

264 

51 

7 
211 
34 
13 
32 
73 
33 

3 
20 
52 
36 
16 
31 


2,627 


348 


CHAIN  STORES 


Details  of  Drug  Store  Chains  by  States 
Alabama — 12 


Town 

Chains 

Stores 

Total 

Birmingham 

Mobile 

2 

2 

3 

3 

6 
6 

Arkansas — 12 

Argenta 

Fort  Smith..  . 
Little  Rock . . . 

San  Francisco. 


California — 175 


Los  Angeles. 


Napa 

San  Bernadino . . 

Riverside 

Oakland 

San  Diego 

San  Luis  Obispo. 


#The  Owl  Drug  Co. 
Shumate's  Pharmacies 
1 
#1 
2 


#Sun  Drug  Co. 


41 

15 

6 

5 

4 

8 

3 

15 

2 

6 

24 

5 

5 

4 

8 

3 

3 

2 

14 

5 

5 

3 

3 

3 

3 

4 

4 

2 

2 

2 

2 

3 

3 

3 

3 

Colorado — 37 


Denver 

#Scholtz-Mutual  Drug  Co. 

10 

2 

3 

6 

3 

2 

6 

Grand  Junction 

1 

3 

3 

Pueblo 

1 
1 

2 
4 

2 

Trinidad 

4 

THE  DRUG  STORE  CHAIN 


349 


Details  of  Diiik;  Store  Chains  by  States   (CoiUiiiucd) 
Connec^ticut — 28 


Town 


Chains 


Stores 


Total 


Bridgeport . 

Hartford. .  . 
New  Haven 
Waterbury . 


J.  A.  Ijeverty  &  Bro. 
1 
4 
1 

#1 


10 

2 

2 

2 

8 

2 

2 

6 

6 

Washington,  D.  C— 36. 


People's  Drug 

11 

11 

3 

3 

9 

8 

2 

16 

Florida— 12 


Jacksonville 

West  Palm  Beach . 


1 
1 

#1 


Georgia — 61 


Atlanta . 


Athens . . . 
Augusta . . 
Dover. . . . 
Eublin . .  . 
Columbus 

Macon. . . 

Savannah 


Jacob's  Pharmacy  Co. 
1 
1 
2 
1 
1 
1 
1 
1 
1 
1 
1 
1 
1 
1 


10 
5 
4 
3 
2 
4 
2 
2 
2 
2 
3 
5 
4 


10 
5 
4 
6 
2 
4 
2 
2 
2 
2 
3 
5 
4 


Idaho— 9 

American  Falls 

Boise 

■      1 

1 

3 

6 

3 
6 

350 


CHAIN  STORES 


Details  of  Drug  Store  Chains  by  States   (Continued) 
Illinois— 219 


Town 

Chains 

Stores 

Total 

Chicago  

Walgreen  Co. 

25 

25 

Central  Drug  Stores 

10 

10 

3 

7 

21 

1 

6 

4 

4 

16 

20 

3 

60 

20 

2 

40 

Danville 

4 
1 

2 
3 

8 

Elgin 

3 

1 

2 

2 

Jacksonville 

2 

3 

6 

1 

2 

2 

Peoria     

1 
1 

4 
3 

4 

3 

1 

2 

2 

Quincy       

1 

6 

6 

Rock  Island 

1 

3 

3 

Springfield 

1 

2 

2 

Indiana — 97 


Indiananolis 

1 

7 

7 

1 

6 

6 

1 

4 

4 

6 

3 

18 

4 

2 

8 

Clem  Thistlewaite 

24 

24 

Clinton 

1 

3 

3 

Gary 

1 

3 

3 

Fort  Wayne 

#1 

9 

9 

Muncie 

1 

3 

3 

1 

2 

2 

South  Bend 

#1 
1 

5 

5 

5 

Terre  Haute 

5 

Iowa — 32 


Burlington .  . 
Davenport . . 

Des  Moines. 

Sioux  City . . 
Waterloo .  .  . 


THE  DRUG  STORE  CHAIN 


351 


Details  of  Drug  Store  Chains  by  States  (Continued) 
Kansas — 13 


Town 


Chains 


Stores 


Total 


Crowsburg 

Hutchinson . . . . 
Kansas  City . .  . 

Ottawa 

Wichita 

Covington 

Louisville 

Bowling  Green. 

Frankfort 

Paducah 

New  Orleans . .  . 
Bogalusa 

Bangor 


Kentucky — 50 


3 

3 

6 

6 

3 

15 

2 

16 

5 

5 

3 

3 

2 

2 

Louisiana — 59 


Paul  Freund,  Inc. 
1 
7 
8 
1 


11 

11 

6 

6 

3 

21 

2 

16 

5 

5 

Maine — 2 


Maryland — 33 


Baltimore 

1 

8 

8 

1 

4 

4 

9 

2 

18 

1 

3 

3 

352 


CHAIN  STORES 


Details  of  Drug  Store  Chains  by  States  {Continued) 
Massachusetts — 84 


Town 


Total 


Boston 

AUston 

Bridgewater . 
Brookline . . . . 
Cambridge. .  . 
East  Boston. 

Lowell 

Lynn 

New  Bedford 

Marlboro .... 
Onstable.  .  .  . 
Plymouth.  .  . 

Quincy 

Roxbury.  .  .  . 
Salem 

Springfield .  . . 


12 
3 
3 
3 
5 
3 
2 
3 
3 
2 
2 
4 
4 
3 
4 
6 
3 
6 
4 


Michigan — 154 


Detroit . 


Adrian 

Ann  Arbor . . . 
Battle  Creek. 
Bay  City 

Flint 

Grand  Rapids 

Ishpeming . . . . 
Lansing 

Muskegon . .  .  . 
Menominee. . . 
Port  Huron. . , 

Pontiac 

Jackson 


Detroit  Drug  Co. 
2 
2 
6 
15 
1 
1 
1 
1 
1 
1 
5 
2 
1 
1 
2 
1 
1 
1 
1 
1 


11 

11 

5 

10 

4 

8 

3 

18 

2 

30 

3 

3 

3 

3 

3 

3 

3 

3 

2 

2 

8 

8 

3 

15 

2 

4 

3 

3 

3 

3 

2 

4 

4 

4 

3 

3 

3 

3 

3 

3 

3 

3 

THE  DRUG  STORE  CHAIN 


353 


Details  of  Drug  Store  Chains  by  States  (Continued) 
Minnesota — 63 


Town 


Chains 


Stores        Total 


Minneapolis 

St.  Paul.... 

Duluth 

Rochester.  . 
Virginia .... 

Glendor 
Meridia; 

St.  Louis. .  . 

Kansas  City 
Joplin 


1 
4 
4 
9 
1 
7 
6 
#1 
1 


Mississippi — 8 

Glendora 

Meridian 

2 

1 

3 
2 

6 

2 

Missouri — 97 

Montana — 6 


Butte. 


Nebraska — 17 


Nevada— 3 


Ely. 


23 


354 


CHAIN  STORES 


Details  of  Drug  Store  Chains  by  States  {Contintied) 
New  Jersey — 28 


Town 


Chain 


Stores 


Total 


Harrison 

Jersey  City .... 

Newark 

West  Hoboken . 


3 

3 

3 

3 

2 

2 

3 

6 

2 

12 

2 

2 

New  York — 417 


New  York  City 

#Louis  K.  Liggett  Co. 

229 

229 

#National  Drug  Stores  Corpora- 

27 

27 

tion 

#United    Retail    Chemists'    Cor- 

18 

18 

poration 

4 

4 

11 

3 

33 

n 

2 

14 

Albany 

4 
3 

4 

6 

Amsterdam 

3 

3 

Auburn    

4 

8 

4 

Brooklyn 

8 

6 

6 

4 

8 

3 

18 

2 

14 

Buffalo 

#Miller-Strong  Drug  Co. 

26 

26 

3 

12 

2 

14 

Coming 

3 

3 

Dunkirk 

3 

7 

3 

Elmhurst 

7 

Elmira 

3 
2 

3 

4 

Interlaken 

2 

2 

Lockport 

3 

3 

Middletown 

#1 

7 

7 

Oswego 

2 

2 

Plymouth              .... 

3 

3 

Rochester 

5 

#Har\'ey  &  Carey 

3 
14 

15 

Salamanca 

14 

Yonkers 

1 

3 

3 

THE  DRUG  STORE  CHAIN 


355 


To  avoid  confusion,  the  Liggett  stores  have  been  grouped  in 
the  New  York  chains,  because  the  majority  of  the  stores  were 
located  there,  but  actually  the  distribution  is  as  follows.  Italics 
indicate  change  in  1921. 


(Liggett's  International,  Ltd.,  now  con- 
trols the  chain  of  630  Boot's  Chemists' 
Shops  in  England,  so  the  Liggett  interests 
actually  operate  nearly  1,000  retail  drug 
stores. ) 

The  Liggett  stores  are  located  in  the 
following  cities: 

Albany,  N.  Y 1 

Allston,  Mass 1 

Atlanta,  Ga 2 

Augusta,  Ga 1 

Bangor,  Me 1 

Binghamton,  N.  Y 1 

Birmingham,  Ala 1 

Boston,  Mass \a,  19 

Baltimore,  Md 1 

Bridgeport,  Conn 1 

Brockton,  Mass 1 

Brookline,  Mass 2 

Brooklyn,  N.  Y 12 

Buffalo,  N.  Y 3 

Cambridge,  Mass 1 

Charlotte,  N.  C 1 

Chattanooga,  Tenn 1 

Chester,  Pa 1 

Cincinnati,  Ohio 3 

Columbus,  Ohio 2 

Detroit,  Mich 4 

Des  Moines,  Iowa 1 

Dalla.s,  Tex 1,  i 

Elizabeth,  N.  J 1 

Far  Rockaway,  N.  Y 1 

Fitchburg,  Mass 2,  / 

Fort  Worth,  Tex 1 

Germantown,  Pa 1 

Haverhill,  Mass 1,  Z 

Hartford,  Conn 1 

Holyoke,  Mass 1 

Jacksonville,  Fla 2 

Jersey  City,  N.J 1 

Johnstown,  Pa 1 

Kansas  City,  Mo 2 

Lancaster,  Pa 1 

Lawrence,  Mass I,  B 

Lewiston,  Me 1 

Long  Island  City,  N.  Y 1 

Lowell,  Mass 2 

Lynn,  Mass 3 

Maiden,  Mass 1 

Macon,  Ga 1 


Manchester,  N.  H 

Meriden,  Conn 

Minneapolis,  Minn 4, 

Mt.  Vernon,  N.  Y 

Montclair,  N.J 

Nashville,  Tenn 

Newark,  N.J 

New  Bedford,  Mass 

New  Britain,  Conn 

New  Haven,  Conn 

New  Orleans,  La 

Newport,  R.  I 

New  Rochelle,  N.  Y 

New  York  City,  N.  Y 61,  5.5 

Oklahoma  City,  Okla 

Passaic,  N.J 

Paterson,  N.J 

Pawtucket,  R.  I 

Philadelphia,  Pa 9, 

Pittsburgh,  Pa 

Pittsfield,  Mass 

Portland,  Me 

Poughkeepsie,  N.  Y 

Providence,  R.  I 4 

Reading,  Pa 

Richmond,  Va 

Rochester,  N.  Y 

Salem,  Mass 

St.  Paul,  Minn 1, 

Saratoga  Springs,  N.  Y 

Schenectady,  N.  Y 

South  Boston,  Mass 

South  Norwalk,  Conn 

Springfield,  Mass 

Springfield,  111 

Stamford,  Conn 

Syracuse,  N.  Y 

Tampa,  Fla 

Taunton,  Mass 

Toledo,  Ohio 

Trenton,  N.  J 

Troy,  N.  Y 

Utica,  N.  Y 

Washington,  D.  C 7, 

Waterbury,  Conn 

White  Plains,  N.  Y 

Wilkes-Barre,  Pa 

Wilmington,  Del 

Worcester,  Mass 2 

Yonkers,  N.  Y 1 


35G 


CHAIN  STORES 


Details  of  Drug  Store  Chains  by  States  (Continued) 
North  Carolina — 17 


Town 

Chains                               Stores        Total 

•    i                  1 

Durham 

East  Durham 

Charlotte 

2 
3 
4 
3 
2 
3 

2 
3 
4 

Raleigh        

3 

Wilmington 

Winston-Salem 

2 
3 

North  Dakota — ^6 


Fargo 

Akron 

Canton 

Bellaire.  .  . 
Cincinnati . 

Cleveland . 


Ohio— 264 


Columbus. .  .  . 

Dayton 

Elyria 

Kenton 

Lima 

Lorain 

Marietta 

Martins  Ferry 

Salem 

Springfield . . . 
Toledo 

Warren 

Youngstown . . 


Day  Drug  Co. 


#Dow  Drug  Co. 


1 
3 

#1 
1 
1 
1 

2 
3 


Marshall  Drug  Co. 

Standard  Drug  Co. 
1 
1 
1 
9 
#Mykrantz  Drug  Co. 
1 
2 
1 

#1 
1 
1 
1 
1 
1 
1 
2 
6 
1 
1 
1 


15 
8 
3 
8 
6 
3 
4 

22 
4 
3 

23 

16 
9 
5 
4 
3 

24 
3 
4 
3 
4 
3 
3 
3 
3 
3 
3 
5 
3 
3 
6 
3 


15 

8 

9 

8 

6 

3 

4 

22 

8 

9 

23 

16 

9 

5 

4 

18 

24 

3 

8 

3 

4 

3 

3 

3 

3 

3 

3 

10 

15 

3 

6 

3 


THE  DRUG  STORE  CHAIN 


357 


Details  of  Drug  Store  Chains  by  States  (Cnntintied) 
Oklahoma — 51 


Town 


Chains 


Stores 

Total 

5 

fi 

3 

3 

2 

2 

3 

3 

2 

2 

2 

2 

5 

5 

3 

3 

3 

3 

6 

6 

5 

5 

3 

3 

4 

4 

5 

5 

Oklahoma  City 

Fairview 

Guthrie 

Lawton 

Muskogee 

Enid 

Okema 

Savannah 

Shawnee 

Tulsa 

Vernon 

Portland 


Oregon — 7 


Pennsylvania — 211 


Philadelphia . 


Altoona . .  . 
Ben  Avon. . 

Erie 

Harrisburg 

Johnstown 
Midland . . . 
Pittsburgh 


Scranton. ... 
Wilkes-Barre . 


#Co-Operative  Drug  Co. 
#1 

2 

2 
26 

1 

1 

1 

1 

#1 
1 
1 
1 
May  Drug  Co. 
IGilchrist-Simpson  Drug  Co. 
1 
1 
6 
4 
1 
1 
1 


13 

13 

8 

8 

5 

10 

4 

8 

3 

78 

2 

2 

5 

5 

3 

3 

2 

2 

8 

8 

3 

3 

4 

4 

3 

3 

10 

10 

10 

10 

6 

6 

4 

4 

3 

18 

2 

8 

3 

3 

2 

2 

3 

3 

358 


CHAIN  STORES 


Details  of  Drug  Store  Chains  by  States  (Continued) 
Rhode  Island — 34 


Town 

1 

Chains 

Stores 

Total 

Providence 

1 

7 

7 

2 

5 

10 

5 

3 

15 

1 

2 

2 

South  Carolina — 13 


Tennessee — 32 


THE  DRUG  STORE  CHAIN 


359 


Details  of  Drug  Store  Chains  by  States  (Continued) 
Utah— 33 


Town 

Chains 

Store         Total 

1 

Salt  Lake  City 

Logan 

Provo 

#Schramm-John8on 

#1 

1 

#1 

#1 

11 
9 
3 
6 
4 

11 
9 
3 
6 
4 

Vermont — 3 


Springfield . . 

Norfolk .... 

Portsmouth . 
Richmond.  . 

Centralia .  . . 
Olympia .... 
Seattle 

Spokane 

Tacoma .... 


Virginia — 20 


0 

10 

3 

3 

3 

3 

2 

4 

Washington — 52 


1 

#1 
1 
1 
7 
2 
1 
1 


3 

3 

4 

4 

8 

8 

5 

5 

3 

21 

3 

6 

3 

3 

2 

2 

West  Virginia — 16 


Wisconsin — 31 

Madison 

1 

4 

4 

2 

2 

4 

Milwaukee 

1 

3 

3 

4 

2 

8 

Racine 

1 

6 

6 

2 

3 

6 

360  CHAIN  STORES 

The  preceding  analysis  should  give  any  druggist  a  fairly  com- 
plete idea  of  the  chain  competition  he  will  have  to  face  in  any 
particular  locality. 

Amount  of  Business  Done. — It  is  difficult  to  arrive  at  any 
accurate  figures  which  might  indicate  the  total  amount  of  busi- 
ness done  by  retail  druggists  in  the  United  States  and  what 
percentage  of  it  is  done  by  chain  organizations,  but  the  following 
attempt  at  such  a  compilation  has  been  made  by  the  Druggist's 
Circular : 

There  are  approximately  50,000  retail  druggists  in  the  country 
and,  according  to  typical  figures  published  by  the  Bureau  of 
Business  Research  at  Harvard  University,  and  to  reports  of 
investigations  conducted  by  pharmaceutical  journals,  credit 
bureaus,  and  others  interested  in  the  subject,  each  of  these 
retailers  sells  about  $25,000  worth  of  merchandise  every  year, 
making  a  total  of  $1,250,000  000  annually  for  the  group. 

Figures  furnished  by  15  of  the  21  larger  chain  organizations 
show  that  these  21  corporations  sell  $76,000,000  worth  of  goods 
each  year — practically  six  per  cent,  of  the  total  amount  sold  by  all 
the  retail  druggists  in  the  country.  In  other  words,  these  21 
corporations  receive  $6  of  every  $100  spent  each  year  in  the  drug 
stores  of  the  country. 

The  annual  receipts  of  the  Louis  K.  Liggett  Co.,  operating 
about  200  stores  during  1919,  were  $30,000,000.  The  Owl  Drug 
Co.,  with  30  stores,  sold  $8,124,000;  the  Mykrantz  Co.  with  30 
stores  $1,250,000;  the  Jacobs  Pharmacy  Co.  with  nine  stores 
$1,200,000;  the  Scholtz-Mutual  Co.  with  14  stores  and  the 
Miller-Strong  Co.  with  19  stores  each,  $1,250,000,  etc. 

The  fact  that  the  chain  drug  stores  as  yet  do  so  little  of  the 
drug  business  proves  that  there  is  a  large  field  still  waiting  for 
chain  development. 

Location. — The  drug  store  is  one  of  the  lines  of  business  where 
it  seems  that  the  proper  site  is  necessary.  Even  the  retailer 
recognized  this  fact,  as  the  term  "corner  drug  store"  indicates. 
As  stated  before,  up  to  this  time  the  chain  drug  stores  have  sought 
out  the  busy  down-town  corners  where  the  largest  amount  of 
traffic  passes.  There  is  a  limit,  however,  to  this  phase  of  devel- 
opment and  the  time  should  shortly  come  when  the  suburban 
districts  will  be  invaded  by  chain  drug  stores. 


THE  DRUG  STORE  CHAIN  361 

The  key  of  business  success  is  percentage,  and  when  $500  a 
month  rent  is  paid  for  a  store  it  is  considered  not  in  terms  of 
dollars,  but  in  percentage.  If  the  location  can  bring  four  per  cent, 
business  all  well  and  good.     If  not,  the  location  must  be  changed. 

The  first  point  of  differentiation  between  the  chain  drug 
store  and  the  independent  store  is  in  location.  The  chain  store 
relies  on  the  transient  trade  secured  by  its  down-town  location 
while  the  independent  drug  store  relies  on  regular  customers. 
The  result  of  this  location  leads  to  the  second  point  of  differenti- 
ation, the  type  of  product  sold. 

The  Product. — The  great  danger  that  the  chain  drug  store  has 
had  to  face  is  to  avoid  becoming  a  department  store.  Owing  to 
its  advantageous  location,  it  found  itself  able  to  sell  almost 
anything  from  fresh  eggs  to  phonographs.  There  was  also  a 
tendency  towards  the  soda  fountain  and  away  from  the  pre- 
scription counter.  This,  however,  was  found  to  be  a  mistake,  as 
the  prescription  counter  turned  out  to  be  a  very  vital  part  of  the 
drug  store's  pulling  power.  Without  the  prescription  counter, 
the  drug  store  lost  its  individuality.  Some  drug  chains  intro- 
duced lunch  counters  which  served  sandwiches  and  salads, 
following  out  the  soda  fountain  idea.  The  success  of  this 
feature  depends  largely  of  course,  upon  the  location  of  the  store. 

At  present,  the  products  carried  in  drug  stores  are  not  stand- 
ardized. The  purchasing  department  of  each  chain  decides 
what  the  stores  can  sell  and  stocks  up  accordingly.  Customers 
have  got  in  the  habit  of  going  to  the  drug  store  for  almost  any- 
thing they  desire.  One  way  for  an  up-to-date  druggist  to  fore- 
cast the  products  he  should  carry  is  to  observe  the  success  of 
his  competitors  with  their  hues.  Writing  paper  is  universally 
stocked.  Hair  nets  at  one  time  were  not  carried  by  the  depart- 
ment stores,  and  were  taken  up  by  a  large  drug  chain  with  success. 
Other  drug  stores  followed  this  example  and  stocked  hair  nets 
successfully.  The  chain  stores  as  a  rule  set  the  fashion  for 
products  which  can  be  carried  by  drug  stores.  If  the  experiment 
works  with  them,  others  follow  their  example. 

Advertising. — The  third  point  of  differentiation  is  the  advertis- 
ing. The  chain  store  advertises;  few  independent  stores  can. 
The  chain,  owing  to  its  metropolitan  location,  can  take  full 
pages  in  the  big  daiHes  and  be  sure  that  the  results  of  this  adver- 


362  CHAIN  STORES 

tising  will  be  spread  around  among  its  stores.  It  does  happen 
occasionally  that  an  independent  store,  desirous  of  obtaining  a 
reputation  as  a  price  cutter,  will  run  cut-price  advertisements, 
but  these  attempts  are  rare  and  not  always  successful. 

The  problem  of  the  small  suburban  druggist  is  a  difficult  one. 
How  is  he  going  to  let  people  know  what  he  carries?  This 
same  question  is  going  to  confront  the  chain  drug  store  when  it 
invades  suburban  locations.  The  answer  seems  to  be  that  the 
metropolitan  advertising  of  the  chain  will  have  to  serve  for 
the  suburban  districts,  most  of  the  inhabitants  of  which  read 
the  city  daily  papers.  Many  of  these  suburbanites  already  buy 
at  chain  drug  stores  in  the  city  and  the  extension  of  the  chain 
to  the  suburb  will  only  make  the  purchasing  easier  for  them. 

Sales  Policies. — The  largest  chain  drug  store  organizations 
do  their  own  manufacturing  in  large  part.  And  they  obtain 
jobbers'  discounts  on  proprietary  medicines.  Thus  they  have 
at  once  the  facilities  for  making  themselves  cordially  disliked 
by  their  independent  competitors  and  by  manufacturers.  They 
can  cut  prices  and  they  can  sell  their  own  goods. 

The  one-cent  sale  has  already  been  discussed.  The  chain 
drug  store,  like  the  chain  grocery  store,  relies  on  loss  leaders 
frequently,  of  which  the  one-cent  sale  idea  is  only  a  novel  form. 
As  for  substitution,  the  practice  is  slowly  dying  out  and  the 
customer  may  be  fairly  certain  of  getting  what  is  asked  for. 

Conclusions. — The  situation  in  the  drug  field  seems  to  be 
briefly  as  follows: 

1.  There  is  but  one  large  chain  in  the  field;  there  are  about  twenty  chains 
operating  between  30  and  10  stores,  and  a  great  many  small  chains. 

2.  The  drug  chains  have  as  yet  availed  themselves  of  a  very  small  part 
of  the  total  possibihties. 

3.  There  is  already  a  tendency  to  enlarge  the  number  of  stores  per  chain 
and  decrease  the  number  of  chains. 

4.  The  chain  drug  store  has  an  advantage  over  its  independent  com- 
petitor in  location,  sales  turnover,  advertising,  management,  and  a  knowl- 
edge of  the  principles  of  retail  store  operation. 


CHAPTER  XXIV 

THE  FIVE-TEN-TWENTY-FIVE-CENT  STORE  CHAINS 

The  five  and  ten  cent  store  chain  differs  from  the  drug  and 
grocery  chains  not  so  much  in  principles  of  operation  as  in  physical 
characteristics.  There  is  the  same  necessity  for  careful  account- 
ing and  for  routine  practice  but  there  are  certain  factors  which 
complicate  the  situation,  such  as  the  following: 

1.  The  five  and  ten  cent  store  chain  has  a  labor  problem. 
Each  five  and  ten  cent  store  has  in  its  employ  a  certain  number 
of  clerks,  usually  a  less  highly  trained  selling  type,  working  for 
lower  wages. 

2.  The  size  of  each  unit  in  a  five-  and  ten-cent  store  is  inevitably 
large,  and  because  of  the  wide  variety  of  goods  carried  it  is 
necessary  to  secure  requisite  turnover. 

3.  Goods  are  sold  at  a  fixed  price,  five,  ten,  twenty-five  cents, 
or  in  some  cases  the  stress  is  laid  on  the  odd  cents,  three,  nine, 
and  nineteen  cent  stores.  The  price  problem  is  at  once  made 
simpler  and  more  difficult.  The  labor  of  registering  and  follow- 
ing up  constant  price  changes  is  removed,  but,  on  the  other  hand 
a  sufficient  variety  of  goods  must  be  found  to  retail  at  these 
fixed  prices. 

4.  A  five  and  ten  cent  store  satisfies  a  much  larger  area  than 
either  the  grocery  or  the  drug  chain  store.  But  because  all 
classes  of  small  articles  used  in  every  day  life  are  sold,  that  is, 
convenience  goods,  the  five  and  ten  cent  stores  have  been  able 
to  operate  profitably  in  communities  with  eight  thousand 
inhabitants.  Contrary  to  other  types  of  chains,  the  five  and  ten 
cent  store  originated  in  a  small  town  in  Pennsylvania  and  it  was 
some  time  before  it  was  operated  in  large  cities.  But  the  neces- 
sary distance  of  the  various  units  of  these  chains  from  other 
units  of  the  same  chain  causes  a  more  decentralized  organization. 
Each  manager  has  more  responsibility. 

The  Field. — The  size,  the  territory  covered,  and  the  publicity 
connected  with  the  operations  of  a  few  of  the  largest  chains  in 

363 


364 


CHAIN  STORES 


the  field  have  almost  made  it  appear  as  though  this  class  of 
chains  was  limited  to  a  few  strikingly  successful  examples,  and 
that  the  field  was  entirely  closed  to  the  "little  fellow."  As  a 
matter  of  fact,  however,  there  are  many  small  chains.  The 
following  table  will  give  some  idea  of  various  chains  in  the  field. 
It  has  been  difficult  to  obtain  the  statistics  for  this  tabulation, 
which  is  at  best  an  approximation. 


Company 


Ue^d  office 


No.  of  stores 


F.  W.  Woolworth  Co 

S.  S.  KresgeCo 

McCrory  Stores  Corp 

S.  H.  Kress 

Metropolitan  Stores 

McLellan  Stores  Co 

W.  T.  Grant  25ff  Stores 

P.  C.  Murphy, 

Duke  &  Ayers,  Inc 

Graham  Latimer 

F.  &  W.  Grand  5,  10,  25fi  Stores. 

Morris  5  &  lOff  Stores 

J.  J.  Newberry  &  Co .  , 

Spurgeon  Mercantile  Co 

A.  L.  Duckwall  Stores  Co 

H.  L.  McElroy  Co 

National  5,  10  &  25ft  Stores 

Read  Stores  Co 

Trick  Bros.  Co 

Charles  Tremayn's  Stores 

Kuhn's  5,  10  &  25ft  Stores 

Wm.  H.  Cobb 

Greene  Bros 

Taylor,  Knobel  Co.,  Inc 

Trimmers  Stores 

Hested  Stores  Co 

John  W.  Tottle,  Ba 

A.  A.  Grimes  10  cent  Stores  Co . . 

F.  E.  Nelson  Co 

L.  J.  Everett  Corp 

W.  W.  Joseph  5  &  10 

Schulz  Bros.  &  Co 

J.  Da  Silva 

Neel  Cunningham, 

.\cme  5  &  10  cent  Stores 


New  York,  N.  Y. 
Detroit,  Mich. 
New  York,  N.  Y. 
New  York,  N.  Y. 


New  York,  N.  Y. 
New  York,  N.  Y. 
Pittsburgh,  Pa. 
Dallas,  Texas 
Ottumwa,  Iowa 
New  York,  N.  Y. 
Bluffton,  Ind. 
Stroudsberg,  Pa. 
Chicago,  111. 
Abilene,  Tex. 
Bowhng  Green,  Ky. 
Omaha,  Neb. 
Kansas 

Benton  Harbor,  Mich. 
Ashley,  Pa. 
Nashville,  Tenn. 
Sharon  Hill,  Pa. 
Lowell,  Mass. 
Tacoma,  Wash. 
Carlisle,  Pa. 
Fairbury,  Neb. 
Baltimore,  Md. 
Kansas  City,  Mo. 
Manchester,  N.  H. 
Jamestown,  N.  Y. 
Pittsburgh,  Pa. 
Chicago,  111. 
Freeport,  N.  Y. 
Chicago,  111. 
Philadelphia,  Pa. 


1,189 

199 

152 

150 

150 

50 

45 

43 

29 

20 

19 

19 

18 

15 

12 

11 

11 

11 

9 

8 

8 

7 

7 

7 

6 

6 

6 

6 
6 
5 
5 

5 
5 
5 


5  ii-  10  CENT  CHAINS  365 

There  arc  many  additional  chains  operating  four,  throe,  and 
two  stores,  but  the  above  Hst  is  sufficient  to  give  an  idea  of  the 
competition.  The  five  and  ten  cent  store  field  seems  to  be 
essentially  the  small  town  of  which  there  are  so  many  in  Pennsyl- 
vania and  the  Middle  West. 

Most  of  these  stores  never  advertise  and  thus  local  chains 
are  not  known  beyond  the  precincts  of  the  territory  they  serve. 
The  store  is  usually  well  located,  painted  in  brilliant  colors, 
usually  red,  and  its  window  display  well  taken  care  of. 

The  F.  W.  Woolworth  Co.— F.  W.  Woolworth  made  himself 
one  of  the  best  known  men  in  America  out  of  nickels  and  dimes. 
He  lived  to  see  the  completion  of  the  Woolworth  Building,  the 
highest  edifice  in  the  world,  and  the  opening  of  the  chain's  thous- 
andth store  on  Fifth  Avenue,  New  York.  The  story  of  his 
rise  to  success  has  often  been  told,  but  a  book  dealing  gener- 
ally with  the  subject  of  the  chain  stores  would  be  incomplete 
without  it. 

Mr.  Woolworth  was  born  in  Rodman,  Jefferson  County,  New 
York,  in  1852.  He  was  the  son  of  a  farmer  and  was  brought  up 
on  a  farm.  But  his  ambitions  lay  along  business  lines.  He 
took  a  course  in  a  commercial  college  at  Watertown,  New  York, 
and  then  went  to  work  with  the  drygoods  firm  of  Augsbury  & 
Moore  at  Watertown.  The  first  three  months  he  received  no 
salary.  Then  he  was  paid  $3.50  a  week.  After  two  and  one-half 
years  he  was  receiving  $6  a  week.  W.  H.  Moore,  when  he  was 
earning  $10  a  week  in  1877,  gave  him  an  opportunity  to  rearrange 
the  stock  in  the  store.  He  did  this,  making  up  a  five  cent  table 
with  a  price  card  inviting  customers  to  take  their  choice.  Mr. 
Moore  was  induced  to  back  a  five  cent  store  in  Utica,  New  York, 
but  sales  were  not  large  enough  to  carry  the  store.  It  was  closed. 
Woolworth  immediately  started  another  store  in  Lancaster,  Pa., 
which  sold  out  over  30  per  cent,  of  the  stock  on  the  first  day.  Sales 
for  the  first  year  were  $6,750.  This  was  the  first  five  and  ten 
cent  store  in  successful  operation. 

Mr.  Woolworth  was  wise  enough  to  see  the  vast  possibilities 
ahead  of  him,  but  he  had  no  organization  and  no  financial  backing. 
He  first  took  his  brother,  C.  S.  Woolworth,  into  partnership  with 
him  in  a  store  in  Harrisburg,  Pa.  This  store  was  unsuccessful. 
It  was  closed  and  another  opened  in  Scranton,  Pa.,  which  quickly 


366  CHAIN  STORES 

established  itself.  In  July,  1886,  a  small  office  was  opened  in 
New  York. 

The  early  growth  of  the  present  Woolworth  chain  was  due  to 
the  training  of  men  in  the  organization  who  later  established 
chains  of  their  own,  culminating  in  the  final  merger  of  1912. 
S.  H.  Knox,  Mr.  Woolworth's  cousin,  went  in  with  Mr.  Wool- 
worth,  and  was  associated  with  him  for  five  years  until  1889, 
when  he  started  for  himself. 

Carson  H.  Peck  was  next  taken  from  the  Utica  store  and  was 
brought  to  New  York  to  help  manage  the  stores  and  buy  mer- 
chandise. F.  M.  Kirby  started  in  with  C.  S.  Woolworth  in 
Scranton,  Pa.,  where  his  entire  office  furniture  was  an  old  dry- 
goods  box.  Earle  P.  Charlton  started  with  Mr.  Knox  and  chose 
the  New  England  field  for  exploitation,  beginning  business  for 
himself  in  1896.  After  the  division  of  the  stores,  Mr.  Charlton 
extended  his  activities  to  California  and  the  Pacific  Coast.  Thus 
from  the  Woolworth  organization  has  developed  five  successful 
chains.  The  national  aspect  of  the  Woolworth  chain  has  already 
been  discussed  in  connection  with  the  merger  of  1912. 

Hubert  T.  Parson,  now  president  of  the  F.  W.  Woolworth 
Company,  started  with  Mr.  Woolworth  in  1892  as  an  accountant. 
He  became  secretary  of  F.  W.  Woolworth  &  Co.,  and  at  the 
time  of  the  merger  naturally  became  secretary  of  the  enlarged 
company. 

The  Woolworth  chain,  like  the  Liggett  chain,  is  far  ahead  of 
all  competitors  in  the  field,  and  like  the  Liggett  chain,  is  a  combi- 
nation of  stores.  While  the  Liggett  stores  have  invaded  England, 
the  Woolworth  stores  have  gone  into  Canada. 

Five  and  Ten  Cent  Store  Policies. — More  than  any  other 
type  of  chain  retailing  organization,  with  the  exception  of  the  self- 
service  store,  the  five  and  ten  cent  store  relies  on  the  goods  to 
sell  themselves.  The  constant  object  of  the  chain  management 
should  be  to  secure  articles  which  sell  easily.  And  practically 
the  whole  secret  of  the  five  and  ten  cent  stores'  selling  program 
is  display.  Beginning  with  the  windows,  which  are  changed 
weekly,  the  whole  store  is  arranged  with  the  one  idea  of  dis- 
playing goods  to  the  best  advantage.  Each  counter  is  a  minia- 
ture store  in  itself  with  articles  arranged  according  to  their 
display  value.     Traffic  routes  should  be  and  ordinarily  are  studied 


5  ct   10  CENT  CHAINS 


367 


with  a  view  to  arranging  the  location  of  the  merchandise.  Men- 
tion has  already  been  made  of  the  necessity  of  having  jewelry 
in  the  front,  and  the  policy  of  putting  household  goods  in  the 
basement. 

The  fundamental  rule,  therefore,  for  a  five  and  ten  cent  store 
is  to  choose  merchandise  which  will  sell  and  display  it  where  the 


Fig.  57. — Selling  peanut  brittle  through  Woolworth  store. 

public  can  see  it  to  the  best  advantage. 

The  second  fundamental  is  the  facilitating  of  sales  by  having 
the  customer  pick  out  the  article  desired  and  handing  it  to  the 
salesgirl  with  the  money. 

All  five  and  ten  cent  stores  are  cash-and-carry. 

The  window  display  of  the  five  and  ten  cent  store  chains  is 
always  attractive,  because  of  the  number  of  articles  displayed, 
the  brilliant  coloring,  or  the  idea  behind  the  display.  Figure  57 
shows  a  window  display  in  the  Woolworth  store  at  Los  Angeles, 


368  CHAIN  STORES 

California.  The  large  card  carries  the  words  "We  sold  ninety 
million  pounds  of  candy  last  year."  The  safe  in  the  center  of 
the  display  was  made  entirely  out  of  peanut  brittle  and  was  an 
exact  duplicate  of  a  real  office  safe.  The  combination  and 
handle  were  made  of  white  candy,  as  was  also  the  lettering  on 
the  top  of  the  safe.  Coins  were  tumbling  out  of  the  safe  into 
the  large  plate,  made  also  of  peanut  brittle.  The  idea  behind  the 
whole  display  was  that  the  public  could  bank  on  Woolworth 
candy  as  evidenced  by  popular  approval  in  the  shape  of  the 
ninety  million  pounds  of  candy  sold  the  year  before. 

The  Labor  Problem. — The  five  and  ten  cent  store  normally 
has  t  o  contend  with  lack  of  interest  and  ignorance  on  the  part  of 
the  sales  girls.  The  lack  of  interest  is  due  to  the  small  wages 
paid  and  the  ignorance  is,  in  great  part,  due  to  the  large  labor  turn- 
over. The  low  wages  have  been  caused  by  a  general  feeling  that 
since  the  goods  were  of  such  a  nature  that  no  sales  effort  was 
necessary,  the  class  of  girl  hired  could  be  of  an  inferior  type. 
The  natural  result  is  an  inefficient  clerk. 

The  New  York  State  Department  of  Labor  investigators  found 
that  thieving  was  included  by  almost  every  manager  as  one  of  his 
greatest  problems.  The  universal  display  of  goods  and  indis- 
criminate use  of  cash  registers  make  thieving  comparatively 
easy.  Both  salesgirls  and  the  public  take  things.  One  manager 
resorted  to  weekly  inventories  and  shrinkage  reports  to  check  up 
losses  apparently  due  to  thieving.  One  store  manager  placed  an 
empty  box,  done  up  carefully  in  paper  and  string,  on  a  front 
counter.  It  promptly  vanished  and  in  the  course  of  a  half  hour 
22  of  these  empty  boxes  had  disappeared. 

A  great  deal  of  the  ignorance,  dishonesty,  and  lack  of  interest 
among  the  salesgirls  can  undoubtedly  be  removed  if  the  turn- 
over is  stabilized,  and  by  the  introduction  of  carefully  planned 
methods  of  employment,  as  suggested  in  the  chapters  dealing 
with  personnel  problems. 

Wages  paid  are  ordinarily  as  low  as  possible.  The  high 
turnover  tends  to  create  plasticity  in  wages.  The  five  and  ten 
cent  store  will  pay  just  enough  to  give  it  a  sufficient  supply  of 
girls,  with  rarely  any  attempt  at  making  them  permanent  workers. 

The  following  tabulation  shows  the  wages  of  women  employees 
in  a  representative  five  and  ten  cent  store  in  a  small  city  in 


5  <fc  10  CENT  CHAINS 


369 


New  York  State,  as  tabulated  by  the  New  York  State  Depart- 
ment of  Labor,  division  of  Women  in  Industry. 


Women's  Wages  in  a  Representative  5  and  10  Cent  Store  in  a  Town 

OF  THE  Second  Schedule 

1915-1921 


Wage  rate 


1915, 

1916, 

1917, 

1918, 

number 

number 

number 

number 

of 

of 

of 

of 

women 

women 

women 

women 

1919, 
number 

of 
women 


1920, 
number 

of 
women 


1921, 
number 

of 
women 


S  4- 

5- 

6- 

7- 

8- 

9- 

10- 

11- 

12- 

13- 

14- 

15- 

16- 

17- 

18- 

19- 

20- 


4.99. 

5.99. 

6.99. 

7.99. 

8.99 

9.99. 
10.99 
12.00. 
12.99. 
13.99. 
14.99. 
15.99. 
16.99. 
17.99. 
18.99. 
19.99. 
20.99 


Total 

Median  wage . 


10 
8 
8 
1 

1 

1 


29 


2 

19 

3 

1 


23 


26 


$5.56        S5.88        $6.76 


2 
11 
6 
2 
1 


24 


$6.86 


11 
4 
3 
2 
2 
2 


26 


$8.38 


22 


$10.00   $11.22 


With  the  advance  in  wages  from  1915  on,  the  number  of  em- 
ployees fell  off.  While  there  were  29  in  1915,  there  were  but  19 
in  1920.  That  is,  the  decrease  in  number  of  employees  nearly 
kept  pace  with  the  wage  increase.  It  would  be  interesting  to 
have  figures  on  sales  in  this  store  to  see  whether  higher  wages 
were  conducive  to  sales  efficiency  or  the  opposite. 

There  is  a  tendency  in  the  five  and  ten  cent  store  chains,  as 
in  department  store  and  other  retailing  agencies,  to  better  the 
condition  of  the  salesperson.  It  is  recognized,  at  least  in  theory, 
that  they  have  a  right  to  a  living  wage  and  the  policy  of  store 
managers  to  make  a  good  showing  by  reducing  salaries  of  his 
salesgirls  to  the  minimum  is  frowned  upon,  and  justly  so. 

24 


370 


CHAIN  STORES 


Hours. — There  is  no  set  time  for  opening  or  closing  five  and  ten 
cent  stores,  In  general,  they  conform  to  the  custom  of  the  com- 
munity. As  a  rule,  stores  in  large  cities  open  at  nine  o'clock  and 
close  at  five  or  six,  but  in  small  cities  and  towns  the  hours  are 
apt  to  be  longer.  In  the  majority  of  small  towns  the  stores  must 
remain  open  Saturday  afternoon  while  in  cities  they  usually 
close  during  the  summer.     Stores  of  the  same  chain,  one  in  a 

WEEBXY  HOURS 


Women 


Men 


Women 


Men 


DAILY  HOURS 
Monday  thru  Friday 


8  hours  and  under  (lower  limit  7]  hours) 
69% 


Over  8  hours 

(upper  limit  9  hours) 

30% 


8  hours  and  under  Gower  limit  7}  hours)  Over  8  hours  (upper  limit  11  hours) 


47% 


Saturday 


)per 

i% 


S  hours  and  under 

(lower  limit  7}  hrs.) 

20% 


8  hours  and  under 
(lower    limit   7i   h.) 
18% 


Over  8  hours  (upper  limit  llj  hours) 
79% 


Over  8  hours  (upper  limit  12  hours) 
81% 


Fig.  58. — Schedule  of  working  hours  in  five  and  ten  cent  store  chains. 


residential  district  and  one  in  a  business  district,  may  keep 
different  hours  although  in  the  same  city.  Independent  stores 
are  likely  to  keep  longer  hours  than  the  chain  stores. 

The  amount  of  actual  sales  in  five  and  ten  cent  stores  is  small 
before  10  a.  m.  but  clerks  must  be  on  hand  at  8:30  or  9  a.  m.  to 
prepare  for  the  day's  business,  restock  counters,  etc.  Customers 
begin  to  come  in  large  numbers  from  11  a.  m.  on. 

Figure  60  is  taken  from  the  New  York  Department  of  Labor 
investigation  and  shows  the  various  working  hours  of  men  and 


5  &  10  CENT  CHAINS  371 

women  for  the  entire  week,  for  Monday  through  P>iday,  and  for 
Saturday  alone. 

Approximately  80  per  cent,  of  the  women  worked  over  48 
hours  a  week.  From  Monday  through  Friday  30  per  cent,  worked 
more  than  8  hours  a  day  but  with  an  upper  limit  of  9  hours. 
Sixty-nine  per  cent,  worked  under  8  hours  but  at  least  as  much  as 
7^^.  The  men  worked  longer,  52  per  cent,  of  them  working  over 
8  hours  with  upper  limit  of  1 1  hours.  On  Saturdays  it  was  appar- 
ent that  everybody  was  worked  to  the  limit.  Sixteen  per  cent, 
worked  11  hours  a  day  and  51  per  cent,  worked  10  hours. 

The  best  wages  were  found  to  be  in  stores  with  the  shortest 
hours,  and  workers  were  paid  less  where  hours  were  longest. 

Price  and  Manufacturing. — Before  the  war,  some  chains  had 
gone  up  to  a  25-cent  limit  but  a  great  many  of  them  remained  at 
the  10-cent  limit.  Now  the  F.  W.  Woolworth  Co.  is  practically 
alone  in  pursuing  the  ten  cent  policy.  All  its  competitors,  al- 
though still  calling  themselves  five,  ten,  and  twenty  five  cent 
chains,  in  reality  have  boosted  the  price  as  high  as  one  dollar  or 
over.  It  was  discovered  that  the  average  sale  of  the  department 
store  is  under  one  dollar  and  the  chains  immediately  capitalized 
this  point  and  branched  out  more  in  the  line  of  dry  goods  and  less 
in  that  of  crockery  and  glass. 

That  this  price  widening  has  been  successful  is  proved  by  the 
record  of  the  stores  that  have  followed  this  policy,  particularly 
the  Kresge  organization.  But  that  goods  can  still  be  made  and 
sold  at  retail  for  ten  cents  is  also  conclusively  proved  by  the 
Woolworth  organization,  the  profits  of  which  have  steadily  gone 
on.  There  is  evidently  a  field  for  both  types  of  chains.  The 
Kresge  stores  and  others  following  the  higher  price  policy  are 
able  to  offer  goods  for  sale  which  naturally  the  Woolworth  stores 
cannot  do.  But  there  are  many  staple  articles  which  can  be 
made  to  retail  at  ten  cents  and  these  will  always  prove  a  definite 
drawing  card,  even  for  the  chains  with  higher-priced  policies. 

While  the  war  forced  many  chains  to  raise  their  price  limit, 
the  Woolworth  Co.  adopted  the  policy  of  manufacturing  those 
things  which  it  could  not  induce  others  to  manufacture.  When 
the  war  made  it  impossible  to  get  any  more  D.M.C.  crochet 
cotton,  it  induced  a  manufacturer  to  devote  his  whole  spinning 
output  to  making  crochet  cotton  which  the  Woolworth  chain 


872  CHAIN  STORES 

put  out  under  the  private  brand  name  of  "Woolco."  By 
following  out  this  policy  of  having  articles  manufactured  under 
contract  exclusively  to  meet  their  own  demands,  the  Woolworth 
organization  is  taking  a  long  step  forward. 

The  small  variety  chain  cannot  hope  to  practice  such 
economies,  but  it  has  the  advantages  and  the  disadvantages  of 
the  fixed  price.  Unquestionably  the  low  price  appeal  of  the  five 
and  ten  cent  store  has  proved  its  greatest  sales  asset. 

The  Manufacturer  and  the  "Five-and-Ten." — It  was  a  long 
time  before  manufacturers  could  be  brought  to  see  the  advantage 
of  producing  articles  that  could  be  retailed  for  ten  cents.  It  is 
true  that  all  manufacturers  cannot  modify  their  products  to  meet 
this  need,  but  there  are  a  great  many  that  can,  and  many  of  these 
are  doing  so  at  the  present  moment. 

It  is  a  rule  of  selling  that  the  best  known  article,  and  the 
one  with  the  best  reputation,  will  sell  better  than  the  unknown, 
unheralded  product,  no  matter  how  good  the  latter  may 
be.  Therefore,  manufacturers  must  come  up  to  the  standard  of 
excellence  set  by  the  five  and  ten  cent  stores.  Their  product  must 
sell  itself,  and  they  must  pave  the  way  for  this  sale  by  pubUcity, 
and  they  must  keep  the  way  paved  so  that  this  article  will  sell. 
The  weak  point  so  far  has  proved  to  be  when  the  manufacturer 
desired  to  sample  his  article  where  its  hold  was  weakest.  This  is 
in  direct  opposition  to  the  policy  of  the  chain  to  sell  it  where 
it  is  strongest.  The  natural  result  is  that,  as  all  the  stores  in  the 
chain  do  not  necessarily  sell  the  same  articles,  the  samples  are 
sold  only  where  the  demand  proves  satisfactory,  and  the 
manufacturer  is  brought  up  sharply  where  he  was  in  the  beginning. 
His  product  will  sell  only  where  his  publicity  has  been  successful. 

Publicity  must  precede  distribution  through  ten  cent  store 
chains.  Otherwise  the  samples  cannot  compete  with  already 
established  lines. 

Mention  has  been  made  elsewhere  of  the  value  to  the  manu- 
facturer of  this  sampling  and  the  publicity  it  gives  the  product. 
The  customer  in  the  ten  cent  store  sees  an  article  on  display 
with  a  familiar  name.  It  costs  only  ten  cents.  She  buys  it, 
hkes  it,  and  the  next  time  it  is  more  than  likely  she  will  purchase 
a  full-sized  package  through  the  regular  channels. 

Sampling  pays  both  the  ten  cent  stores  as  well  as  the  manufac- 


5  tfc  10  CENT  CHAINS  373 

turer.  It  gives  him  the  prestige  incident  to  carrying  a  well 
known  brand.  It  relieves  him  of  the  imputation  of  retailing  only- 
cheap  articles. 

Stock. — The  five  and  ten  cent  store  is  and  should  be  an  exact 
reflection  of  the  community's  hkes  and  dislikes.  This  is  easier  in 
the  case  of  individual  five  and  ten  cent  stores  because  of  the  wider 
scope  allowed  the  manager  in  selecting  his  goods.  Allowance  also 
is  made  for  small  communities,  where  naturally  stock  must  be 
more  closely  watched  with  regard  to  its  turnover,  than  it  is  in 
cities  where  slower  moving  articles  can  be  merchandised 
profitably. 

Five  and  ten  cent  chains  frequently  grant  temporary  con- 
cessions to  manufacturers.  They  are  considered  excellent  publi- 
city and  in  many  cases  serve  as  a  drawing  card  for  the  store  rather 
than  as  an  attempt  to  sell  the  goods.  The  arrangement  ordinarily 
is  that  after  the  concessionaire  moves  on,  the  chain  is  given  the 
agency  and  a  certain  percentage  of  profits  made  during  the 
concession. 

Permanent  concessions  very  often  form  miniature  chains  within 
chains.  This  may  be  in  the  case  of  the  music  counter  which  is 
run  by  a  special  company  having  a  branch  in  each  of  the  stores. 
Such  a  department  is  considered  an  added  attraction  and  an 
inducement  for  customers  to  come  to  the  store.  A  singer  will 
often  draw  a  crowd  to  the  store.  One  chain  grants  a  grocery 
concession  in  its  stores  as  a  drawing  card. 

Conclusions. — The  newcomer  in  the  variety  field  has  much  to 
contend  with — strong  competition,  efficient  methods,  operating 
economy,  large  stock,  etc.  But  there  are  also  some  points  in  his 
favor.  By  carefully  choosing  his  location  he  may  be  sure  of  a 
certain  percentage  of  trade.  The  five  and  ten  cent  store  as  a 
non-advertiser  must  rely  on  location.  A  customer  will  not 
normally  walk  out  of  his  way  to  trade  at  one  five  and  ten  cent 
store  rather  than  at  another.  He  goes  to  buy  a  certain  staple 
article  and  he  expects  to  find  it  at  any  five  and  ten  store 
rather  than  at  a  particular  one. 

The  customer  should  also  be  able  to  procure  a  standard  stock 
to  sell  within  the  prescribed  price  limits.  But  such  a  venture 
necessarily  demands  a  certain  minimum  of  capital  without  which 
it  would  be  folly  to  begin. 


CHAPTER  XXV 
DRYGOODS  AND  CLOTHING  CHAINS 

The  selling  of  dry  goods  and  clothing,  shoes,  hats,  etc.,  has, 
from  the  earliest  times,  always  been  an  important  retaihng  activ- 
ity and  it  is  to  be  expected  that  the  chain  should  have  made 
considerable  inroads  in  these  fields.  Whenever  the  question 
of  public  taste  enters  the  selling  equation,  however,  there  are 
new  difficulties  to  surmount.  The  ordinary  forms  of  clothing  are 
not  convenience  goods,  but  rather  are  shopping  lines.  Therefore, 
the  turnover  is  likely  to  be  slowed  down.  A  customer  does  not 
come  in  and  say  "I  shall  take  this  or  that."  He  says  "Let  me 
look  at  this  or  that,"  and,  if  it  does  not  suit,  the  customer  goes 
away.  Therefore,  the  problem  of  the  chain  retailer  of  drygoods 
and  clothing  is  to  pick  out  only  those  lines  which  the  majority 
of  people  will  choose.  That  is,  there  must  be  no  ultra  styles, 
there  must  be  no  odd  sizes,  and  the  stock  must  be  limited  in 
supply  of  seasonal  goods  to  what  surely  can  be  sold.  Chain 
drygoods  and  clothing  chains  cannot  afford  to  purchase  far 
ahead.  The  Penney  chain,  which  has  been  the  most  successful 
in  the  drygoods  field,  makes  it  one  of  its  cardinal  policies  to  buy 
no  more  than  is  immediately  needed. 

Another  point  which  may  cause  difficulties  to  the  drygoods 
chain  is  a  difference  of  demand  in  different  sections.  This  can  be 
overcome  only  by  allowing  the  local  manager  considerable  lati- 
tude in  his  choice  of  stock.  Although  there  may  be  a  central 
purchasing  organization,  still  that  body  acts  in  the  closest 
cooperation  with  the  local  stores,  and  buys  only  what  is  certain 
to  be  approved  by  local  managers.  Even  shoe  manufacturers 
running  their  own  local  retail  stores  are  careful  to  consult  the 
local  manager  in  advance  of  manufacture  about  styles  for  the 
coming  season. 

In  the  case  of  shoe  chains,  the  type  of  demand  may  be  different 
in  one  section  of  the  town  from  what  it  is  in  the  other.     Hat 

374 


DRYGOODS  AND  CLOTHING  CHAINS  375 

chains,  haberdashery  chains,  and  clothing  chains  all  have  many 
seasonal  problems  to  meet. 

This  type  of  chain  retailing  shopping  lines  has  to  do  a  great 
deal  of  advertising,  and  consequently,  it  is  possible  that  in  some 
cases  location  may  not  play  so  important  a  part.  In  the 
Penney  chain,  for  example,  the  appeal  is  through  price  and  quality. 

Shoe  stores,  however,  retailing  cheap  shoes,  which  come 
practically  under  the  class  of  convenience  goods,  must  find 
suitable  locations.  All  stores,  of  course,  must  locate  in  the 
section  devoted  to  the  trade  they  wish  to  capture.  A  shoe 
store  retailing  quality  ladies'  shoes  would  be  out  of  place  in  the 
financial  district. 

In  the  case  of  the  dry  goods  store,  the  control  is  far  more 
decentralized  than  in  the  case  of  the  haberdashery,  the  hat,  or 
the  shoe  store.  The  dry  goods  store  usually  has  but  one  link 
in  a  town,  while  the  other  types  of  store  have  several.  In 
general,  the  manager  of  the  dry  goods  store  hires  his  own  clerks, 
chooses,  if  not  purchases,  his  own  merchandise,  pays  his  incidental 
expenses,  attends  to  local  advertising,  etc. 

Even  where  chains  have  gained  strong  hold  in  drygoods  and 
clothing  lines,  the  general  policy  has  always  been  to  sell  only 
the  standard  styles  and  sizes  and  at  low  or  moderate  prices. 

The  Drygoods  Chains. — There  are  but  two  dry  goods  chains 
with  a  large  number  of  unit  stores,  the  Penney  and  the  Perkins 
chains.  But  there  are  several  organizations,  such  as  the  Asso- 
ciated Drygoods  Co.,  and  the  May  Department  Stores,  whose 
gross  sales  mount  up  into  many  millions.  Thus  two  types  of 
chain  drygoods  stores  may  be  distinguished. 

1.  The  small-unit  type.  This  class  carries  lower-priced 
merchandise,  standard  styles  and  sizes,  employs  few  clerks,  is 
located  in  small  towns,  generally  in  the  South  and  Middle  West, 
Pennsylvania,  and  New  York.  Purchasing  is  ordinarily  done  at 
headquarters  in  this  type  of  chain,  and  close  watch  is  kept  of 
individual  stores  by  careful  accounting  methods.  This  type  of 
drygoods  store  comes  in  direct  competition  with  the  small 
independent  drygoods  stores  in  medium-sized  towns. 

2.  The  large  unit  type.  These  are  found  in  the  large  cities, 
and  carry  a  much  more  diversified  and  better  line  of  goods. 
The    control    however,    of   the   central   organization   over   the 


376  CHAIN  STORES 

member  stores  is  much  less.  In  some  cases,  it  is  merely  financial, 
limited  to  stock  ownership  in  a  holding  company,  and  there  is 
much  question  whether  this  control  is  sufficient  to  entitle  the 
organization  to  be  called  a  chain. 

The  largest  field  in  the  drygoods  line  seems  to  be  that  offered 
by  the  small  towns.  The  chain  store  can  usually  offer  a  much  better 
stock  than  its  local  competitor,  and  by  careful  watching  of  sales 
can  shift  merchandise  around  in  order  to  avoid  loss,  yet  at  the 
same  time  secure  adequate  turnover. 

Following  is  a  list  of  the  most  prominent  chain  drygoods  stores 
as  compiled  by  the  Fairchild  Company: 

No.  OF  Stores 
Affiliated  Retail  Stores — Pittsburgh,  Cleveland,  St.  Louis, 

Milwaukee,   etc 12 

Associated  Dry  Goods  Co.,  New  York 9 

Belk  Bros.  Organization — North  Carolina 17 

Buchanan  Co.,  Hillsdale,  Mich. — IlUnois 8 

Broadwell's,  CaUfornia 4 

Clarke  Brothers,  Pennsylvania 19 

Consolidated  Drygoods  Co.,  Western  Massachusetts  and 

up-state  New  York 5 

W.  P.  Chamberlain  Co.,  New  Hampshire  and  Vermont.  .  8 

Cole  Bros.,  Missouri  and  Kansas 6 

Cherry's,  CaUfornia,  Oregon  and  Washington 6 

Chaffee,  central  New  York  State 4 

Dives,  Pomeroy  &  Stewart,  Pennsylvania 5 

Efirds    Department    Stores,    Inc.,     North    and    South 

CaroUna 19 

Emrich  chain,  Illinois 6 

D.  G.  Fowler  Co.,  Pennsylvania  and  Indiana 7 

Graham,  Sykes  Co.,  Texas  and  Oklahoma 16 

J.  M.  Gidding  Co.,  New  York,  Duluth,  Philadelphia,  and 

Cincinnati 4 

Goodnow- Pearson  Co.,  Fitchburg,  Mass 13 

Gilmer's  Inc.,  North  and  South  Carolina  (controlled  by 

United  Retail  Stores  Corp.) 18 

KUne's,  Middle  West 4 

Irwin  Cloak  Co.,  Ohio  and  Missouri    3 

M.  Luria  &  Co.,  up-state  New  York 9 

Lynch-Fuller  Corp.,  western  New  York 5 

May  Department  Stores  Co.,  Middle  West 4 

Mercantile  Stores  Corp.,  New  York  National 25 

W.  H.  McAlUster,  Sycamore,  111 18 

Parke,  Snow,  Inc.,  Boston,  Mass 8 

J.  C.  Penney  Co.,  Middle  West  and  West 313 


DRYGOODS  AND  CLOTHING  CHAINS  377 

No.  OP  Stores 

D.  Price  &  Co.,  New  York 3 

Perkins  Bros.  Co.,  Texas 350 

Rorabaugh  Co.,  Kansas,  Illinois  and  Oklahoma 6 

Ross  Stores,  Inc.,  New  Jersey  and  New  York 5 

D.  G.  Ramsey  Bros.,  Kansas  and  Missouri 5 

Smith  Bros.  Co.,  Pennsylvania 6 

John  Stillman,  Michigan  and  Indiana 4 

Albert  Steiger  Co.,  Springfield,  Mass 7 

Seitner  &  Co.,  Canton,  Ohio 3 

Weiler  Syndicate,  Indiana,  Illinois,  and  Ohio 7 

This  list,  like  other  lists  of  chain  stores,  is  not  complete  because 
of  the  constant  changes  which  are  taking  place  in  the  chain 
store  field.  Old  chains  are  constantly  adding  new  links,  absorb- 
ing other  stores  or  chains,  or  new  chains  are  rising  up. 

Gilmer's,  Inc.,  as  noted  in  the  list,  has  been  acquired  by  the 
United  Retail  Stores  Corp.  It  is  too  soon  as  yet  to  tell  whether 
the  methods  which  made  the  United  Cigar  Stores  Co.  so  success- 
ful can  be  applied  with  equal  profit  to  a  drygoods  chain  such  as 
Gilmer's,  which  sells  in  the  medium-sized  southern  cities,  such 
as  Winston-Salem  and  Durham,  North  Carolina,  and  Roanoke 
and  Lynchburg,  Virginia. 

The  drygoods  field  is  still  the  field  of  the  small  chain,  and  the 
question  has  not  been  settled  how  far  the  chain  idea  can  be 
applied  to  the  drygoods  store,  properly  so-called. 

Men's  Wear  and  Haberdashery. — There  have  been  small 
chains  dealing  in  men's  wear,  mostly  local,  for  years.  It  is  only 
in  the  past  few  years  that  a  number  of  chains  have  sprung  up 
and  spread  with  great  rapidity.  Their  growth  has  been  almost 
too  large  for  safety;  but  war  conditions  helped  them  along  and 
enabled  them  to  get  on  their  feet  before  the  period  of  deflation 
came.  The  chain  haberdashery  stores  get  as  close  as  possible 
to  the  convenience  class.  A  man  will  buy  a  shirt,  a  collar,  or  a 
necktie  at  almost  any  store  while  he  will  go  out  of  his  way  to 
buy  a  suit  of  clothes. 

The  following  four  chains  deserve  mention: 

Chain  Shirt  Shops,  Inc.,  New  York  City 52 

Weber  &  Heilbroner,  New  York  City 20 

United  Shirt  Shops,  New  York  City 31 

Paramount  Shirt  Shops,  New  York  City 10 


378  CHAIN  STORES 

There  are,  in  addition,  a  large  number  of  small  chains,  with 
two,  three,  four,  or  five  member  stores,  all  apparently  pros- 
perous, but  showing  little  signs  of  further  expansion. 

The  Chain  Shirt  Shops,  Inc.  is  controlled  by  the  Phillips- 
Jones  Corporation,  manufacturers  of  shirts,  etc.  In  a  sense, 
therefore,  it  is  a  manufacturer's  chain,  although  the  control  is  only 
through  stock  ownership.  The  company  has  25  stores  in  New 
York  City  alone,  and  has  spread  as  far  as  Boston,  Philadelphia, 
and  Rochester. 

The  United  Shirt  Shops  started  out  in  Johnstown,  Pa.,  as  the 
United  Dollar  Shirt  Shops.  This  was  in  1916.  The  rapidly 
advancing  prices  caused  by  the  war  made  it  advisable  to  change 
the  name  to  the  United  Shirt  Shops.  The  growth  was  rapid, 
and  at  present  the  chain  is  the  third  largest  in  the  country  dealing 
in  haberdashery. 

The  rapid  growth  in  this  field  was  due  to  an  unquestioned 
need  for  better  methods,  better  stuffs,  fairer  values,  and  new 
merchandising  ideas.  Furthermore,  haberdashery  seemed  to  be 
particularly  fitted  to  the  economies  possible  to  effect  by  applying 
chain  methods  of  purchasing  and  accounting. 

Jacob  Kagan  and  A.  Fred  Podren  have  described  the  method 
they  followed  in  installing  an  accounting  system  for  a  chain 
of  retail  men's  wear  shops.  Where  the  chain  is  too  small  to 
maintain  a  warehouse,  as  most  of  them  still  are,  goods  are  sent 
to  the  stores  with  memorandum  of  goods  shipped,  but  with  no 
prices.  The  manufacturer  sends  the  office  a  duplicate  of  the 
memorandum  containing,  however,  the  cost  prices.  The  store 
manager  signs  a  receipt  and  forwards  it  to  headquarters.  To 
avoid  delay,  the  central  office,  as  soon  as  it  receives  notification  of 
shipment  from  the  manufacturer,  sends  invoices  to  the  stores 
of  the  goods  at  retail  prices,  and  these  invoices  arrive  in  advance 
of  the  goods. 

Cash  received  for  goods  sold  is  rung  up  on  the  cash  register, 
and  cumulative  record  of  sales  is  thus  kept.  Every  evening, 
the  cash  register  readings  are  put  on  the  daily  cash  report, 
the  difference  between  the  previous  reading  and  the  one  for  the 
day  in  question  forming  gross  sales  for  the  day.  The  store 
manager  deposits  all  cash  at  the  bank  and  the  bank  teller  stamps 
report  in  space  provided.     See  Fig.  59. 


DRYGOODS  AND  CLOTHING  CHAINS 


379 


On  the  reverse  side  of  the  form  is  place  for  all  cash  expendi- 
tures. If  paid  at  the  store,  an  amount  must  be  deducted  from 
deposits  at  the  bank,  but  the  better  way  is  to  have  them  paid  by- 
check  from  the  central  office. 

Figure  60  shows  a  simple  form  of  inventory  for  use  in  small 

FORfVf    A  Reverse  Side,  Form  A 


O  0 

CHAIN 

I — |aberpasher\^ 


SHOPS 
DAILY  CASH  REPORT 


Store  No.. 


.Manager 


Dar  of  WMk 


Month 


Day 


Reglstor  Retiding  After  Last  8ale  Today     .  . 
Register  Reading  After  Last  Sale  Yesterday 

SALES  FOR  TODAY      .  

Expenditures    (see  reverse  side) 

BALAN'CG — DEI-OSITED  IN  BANK 


O.  K.'d  by 

Approved  by 

Name  of  Banic 

(BANK  STAMP) 

City  or  Town 

DEPOSITED  BY 

PS 

CHAIN      HASEROASHERY     Sllll 

BOSTON.  MASS. 
Date  Deposited                        19* 

Bills 

Checks  on 

•• 

" 

■• 

TOTAL 

CASH    EXPENDITURES 


Store  No. Day 

192 

Paid  the  following  expense  items: 

Help  (Klve  full  deUils) 

Ice  Water 

Express 

Postage 

Removing  Rubbish 

Other  Items  (list  each  individually) 

Total  (carried  on  Reverse  Side) 

Remarks,  Suggestions,  etc. 


o 


o 


Fig.  59. — ^Form  of  daily  cash  report  used  in  haberdashery  chain. 

haberdashery  chains.  Columns  are  provided  for  different-priced 
articles  in  the  store.  The  quantity  only  is  placed  in  the  price 
column.  Total  inventory  can  quickly  be  found  by  multiplying 
and  adding  totals. 

This  way  of  taking  stock,  according  to  "The  Haberdasher," 
is  quick,  and  supplies  all  information  in  which  the  accounting 


380 


CHAIN  STORES 


Form  B 


score  No.. 

.  .    Addren 

1 

Date  .... 

fHAIN 

HARFRnA'^HFRY 

ciinDc  1 

UIMIIl  ■■~'"*'^ ••jiivikj 

InTentor,  Uke.  by                                                                                                                        INVENTORY 
DO  NOT  SIGN    this  Stock  Shm  unlm  you  an  Sure  h  u    ACCURATE 

1     09 

78 

98 

- 

{  105 

• 

97 

81 

9 

2 

! 

— 

- 

71 

16 

19 

1 

1 

sa 

105 

77 

, 

20S 

73 

87 

1 

1 

1 

- 

_ 

- 

1 

1 

1 

1    1 

K 

> 

< 

1 

1 

1 

1 

- 

— 

- 

4SS 

211 

282 

s 

s 

S 

1 

2 

09 

s 

§ 

Reverse  Side,  Form  B 


BOOK  nrt-EXTORV  CHARGES 

INVENTORY 

BOOK   IN\*KSTOBY   CREDITS 

InTentorj  Beginofng 

1 

Store  No. 

Sales  to  Date 

1 

Shipments 

AddrcM 

Reductions 

Jonmal  Charges  {Tramjfirt,  etc.) 

Manager 

Special  Sale  Reductions 

AdTsnces 

Taken  By 

Journal  Credits  i  Trasj/w-j,  «c. ) 

Sundries 

Date — From              to 

Sandrles 

1  Figured  By 

Physical  InTentory 

Book  Inventory 

Orer  (black  Ink) 

1 

Short  (red  ink) 

BOOK    nrVENTOKY 

Summary  Charges 

Summary  Credits 

Balance 

Book  InTentory 

Fig.  60. — Form  of  inventory  in  haberdashery  chain. 


DRYGOODS  AND  CLOTHING  CHAINS  381 

department  is  interested.  This  department  (accounting)  is 
interested  only  in  the  amount  of  merchandise  represented  in 
dollars  and  cents.  Its  lookout  is  not  as  to  the  kind  of  merchan- 
dise in  the  stores. 

The  reverse  side  of  the  inventory  form  contains  space  for 
general  and  special  information,  and  for  book  inventory  charges. 

Each  store  manager  is  supposed  to  keep  a  store  ledger,  in 
which  he  charges  himself  for  goods  received  and  credits  himself 
for  cash  turned  in.  All  his  entries  are  made  at  retail  prices. 
In  times  of  rapid  price  changes,  there  will  be  entries  for  mark-ups 
and  mark-downs.  Where  goods  are  frequently  changed  from 
store  to  store,  there  should  be  space  for  transfers. 

The  above  system  is  exceedingly  simple,  and  is  not  recom- 
mended for  any  but  small  chains  which  cannot  afford  the  over- 
head expense  necessary  to  install  a  more  complex  accounting 
system.  This  method  lays  the  responsibility  for  watching  the 
particular  items  in  stock  on  the  store  manager  himself  as  checked 
up  by  the  district  superintendent.  In  more  complete  systems, 
inventories  contain  detailed  account  of  all  items  in  stock. 

In  the  men's  furnishing  shop,  as  well  as  in  the  hat  store  and 
the  shoe  store,  the  element  of  salesmanship  enters.  Service 
is  far  more  important  than  it  is  in  the  drug  store,  the  grocery 
store,  or  the  five-  and  ten-cent  store.  But  the  sale  is  complicated 
whenever  a  choice  is  to  be  made  by  the  customer,  and  where  the 
attitude  of  the  clerk  may  mean  a  large  or  a  small  sale.  A  good 
haberdashery  salesman  will  build  up  a  collar  sale  into  a  shirt  sale. 
The  higher  type  of  salesmanship  required,  the  more  difficult  it  is 
to  secure  adequate  control  in  a  chain.  Thus  the  problem  of  the 
personnel  is  even  more  important  in  stores  dealing  in  shopping 
lines  than  it  is  in  those  handling  convenience  goods  only. 

Hats. — Chain  stores  in  the  hat  industry  have  existed  for  fifteen 
years,  and  in  that  course  of  time  have  expanded  slowly,  and  not 
with  the  remarkable  activity  characteristic  of  the  chain  haber- 
dasheries. The  following  list  shows  the  leading  retail  chain 
hatters,  dealing  in  headgear  alone. 

Stohes  Stores 

Sarnoff-Irving 52     Long's  Hat  Stores 23 

B.  H.  Kaufman 50     Truly  Warner 21 

Wormser  Hat  Stores 36    Kenton  Hats 14 

Snyder's  Inc 25     Young's  Hat  Stores. 11 


382  CHAIN  STORES 

In  addition  to  the  above  list,  there  are  several  local  chains. 
There  are  also  many  general  chain  store  organizations  which 
carry  hats,  such  as  Browning,  King  &  Co.,  the  Menter  stores,  etc. 

The  chain  hat  stores  started  by  holding  closely  to  the  cheaper 
grades.  Truly  Warner  and  Kaufman  have  kept  to  a  fixed  price 
limit,  but  Sarnoff-Irving,  which  formerly  had  a  $2  limit,  now 
handle  hats  as  high  as  $7. 

A  chain  hat  store  has  to  contend  with  the  desire  of  the  average 
customer  to  have  a  distinctive  hat,  while  it  must  be  the  policy 
of  the  chain  to  furnish  a  standard  hat.  This  explains  the  tend- 
ency of  the  chain  hat  stores  to  hold  to  the  cheaper  grades.  The 
large  hat  manufacturers  ordinarily  give  their  agencies  to  inde- 
pendent hatters. 

Clothing. — This  field  may  be  divided  broadly  into  men's 
and  women's  clothing.  In  the  men's  clothing  field,  there  is 
Browning,  King  &  Co.,  with  28  stores,  which  manufacture  only 
for  themselves,  the  Rogers  Peet  Co.,  which  operate  stores  of  their 
own  and  give  agencies,  and  such  chains  as  the  Monroe  Clothes 
Shops,  with  11  stores  in  New  York.  The  field  is  an  exceptionally 
difficult  one  for  a  chain  organization  to  handle  successfully, 
owing  to  the  rapid  changes  in  style,  price,  etc. 

The  problem  of  retailing  women's  clothing  through  chain 
stores  is  even  more  difficult.  Nevertheless,  the  Bedell  Company, 
of  New  York,  operates  a  chain  of  seventeen  retail  stores  for  the 
sale  of  women's  suits  and  cloaks. 

The  New  York  Waist  Co.  operates  a  cnain  of  stores  in  New 
York  and  Brooklyn,  selling  women's  waists.  The  National 
Hosiery  Stores,  with  nine  shops,  the  Gotham  Hosiery  Co., 
with  four  and  some  others  with  but  two  links,  sell  women's 
hosiery. 

Shoes. — The  retailing  of  shoes  has  offered  real  opportunities 
for  chain  organization,  and  especially  to  the  manufacturers  of 
shoes,  to  start  retail  chains  under  their  supervision.  The 
number  of  small  chains  is  legion,  and  there  is  a  comparatively 
large  number  of  moderate-sized  chains. 

The  chain  shoe  field  is  remarkable  for  the  number  of  firms 
manufacturing  and  at  the  same  time  managing  retail  stores.  As 
a  matter  of  fact,  shoes  are  sold  in  six  different  ways : 


DRYGOODS  AND  CLOTHING  CHAINS  383 

1.  Independent  shoe  store, 

2.  Manufacturer-owned  store, 

3.  Department  stores, 

4.  Privately-owned  chain  stores, 

5.  Independent  stores  having  exclusive  agency  for  some  manufacturer, 

6.  Mail-order  houses. 

We  are  concerned  here  only  with  classes  2  and  4.  Class 
2  is  the  commonest  form,  and  seems  to  find  it  possible  to  make  a 
success.  The  privately-owned  chain  is  at  a  disadvantage,  and 
must  content  itself  with  retailing  a  cheap  grade  of  shoes.  The 
following  is  a  partial  list  of  chain  shoe  stores,  both  manufacturer 
and  strictly  retail: 

Stores 

Newark  Shoe  Co.,  Baltimore,  Md 300 

W.  L.  Douglas  Shoe  Co.,  Brockton,  Mass 107 

G.  R.  Kinney  Co.,  Inc.,  New  York  City 102 

Regal  Shoe  Co 56 

Hanan  &  Sons 

George  E.  Keith  (Walkover) 

Beck-Hazard  Stores,  Inc.,  New  York  City 28 

The  following  chains  operate  more  than  three  but  less  than 
ten,  and  the  list  does  not  pretend  to  be  complete,  as  there  are 
many  more  throughout  the  country: 

Adler  Shoe  Co.  Thomas  G.  Plant  Co. 

I.  Blyn  &  Sons  Dr.  Read  Cushion  Shoe  Co. 

Bouve-Sterling  Rice  &  Hutchins 

Edwin  Clapp  &  Son  Rival  Shoe  Co. 

Emerson  Shoe  Co.  Star  Shoe  Co. 

Ground  Gripper  Co.  Stetson  Shops,  Inc. 

London  Shoe  Co.  United  Shoe  Stores,  Milwaukee,  Wis. 

D.  Loventhal's  Sons  Wildfeuer  Bros. 

I.  Miller  &  Sons 

In  addition  to  shoe  stores  proper,  there  are  several  chains  of 
shoe  repairing  shops,  such  as  Klein's  Rapid  Shoe  Repair  Co.,  in 
New  York,     There  are  also  some  shoe-shining  chains. 

The  great  problem  in  merchandising  shoes  has  always  been 
securing  turnover  in  all  lines.  There  is  a  choice  of  two  evils, 
either  to  prune  stock  to  bare  necessities  and  lose  customers,  or  to 
accept  a  reduced  turnover.  One  small  shoe  chain  has  found  its 
solution  in  reducing  the  time  of  selling  a  shoe  to  eight  minutes 


384  CHAIN  STORES 

per  customer.  If  the  customer  cannot  make  up  his  mind  in 
that  length  of  time,  he  is  pohtely  advised  to  look  somewhere 
else.  This  shoe  chain  has  adopted  a  form  of  self-service,  allowing 
the  customer  to  put  on  the  shoes  and  fit  himself.  In  this  way, 
one  clerk  can  handle  several  customers  at  the  same  time.  In 
spite  of  this  innovation,  the  stores  are  making  money  and 
securing  a  turnover  of  ten  times  annually,  more  than  twice 
what  the  average  chain  shoe  store  expects  to  obtain. 


CHAPTER  XXVI 
OTHER   CHAIN   FIELDS 

The  development  of  chain  stores  has  followed  the  lines  of 
least  resistance.  First  those  fields  were  taken  up  and  exploited 
which  were  devoted  to  the  retailing  of  necessities  and  of  products 
which  every  individual  uses  constantly.  The  grocery  chain,  the 
drug  chain,  the  five  and  ten  cent  store  chain,  and  the  clothing 
and  apparel  chains  are  all  in  this  class. 

But  with  the  development  of  chain  stores,  with  the  better 
functioning  of  method  and  the  cumulative  force  of  a  successful 
enterprise,  the  chain  store  idea  has  grown  in  two  directions. 

1.  It  has  been  extended  to  the  retailing  of  articles  which 
cannot  strictly  be  called  necessities,  but  which  many  people 
find  necessary  to  their  comfort.  In  this  class  come  the  tobacco 
and  confectionery  chains,  which  are  founded  on  habit,  and  the 
optical  chain,  which  is  based  on  defective  vision.  In  many 
cases  there  have  been  long  established  chains  in  these  fields,  but 
with  the  exception  of  the  United  Cigar  Stores  Co.,  their  growth 
has  been  slow  compared  with  that  of  the  grocery  and  five-  and 
ten-cent  store  chains. 

2.  It  has  been  extended  to  the  retailing  of  products  which 
necessitate  special  service.  In  this  class  comes  the  restaurant 
chains  where  food  has  to  be  prepared  and  served.  It  also  includes 
chains  of  hotels,  theatres,  and  places  of  amusement  which  have 
successfully  applied  the  principles  of  chain  operation  to  their 
special  problems. 

The  Retail  Tobacco  Chains. — Some  of  the  most  efficient  and 
profitable  methods  of  chain  operation  have  been  developed  in  the 
tobacco  field.  The  United  Cigar  Stores  represents  a  case  where 
a  man  saw  opportunity  and  seized  it.  When  George  J.  Whelan 
decided  that  his  eight  stores  in  Syracuse,  New  York,  were  not 
large  enough  to  satisfy  his  ambition,  and  came  to  New  York 
City,  a  new  era  was  opened  in  chain  store  development  as  well  as 
in  retail  tobacco  merchandising. 
25  385 


386  CHAIN  STORES 

The  independent  cigar  stores  had  been  losing  ground  steadily 
to  the  drug  stores,  the  hotels,  and  the  news  stands,  all  of  which 
carried  cigars  and  tobacco.  The  cigar  store  Indian  stood  for 
all  that  was  antiquated  in  retail  merchandising.  The  United 
Cigar  Stores  Co.  was  formed  in  1900,  and  the  principles  which 
it  adopted  at  that  time  are  still  in  force.  Reducing  the  loca- 
tion of  his  stores  to  a  science,  Mr.  Whelan  went  a  step  further,  and 
in  the  days  when  personnel  administration  was  a  name  without 
meaning,  he  drilled  his  men  with  the  principal  idea  of  having 
them  render  service  to  customers.  He  standardized  merchan- 
dise, standardized  the  appearance  of  his  stores,  standardized  his 
methods  of  accounting,  and,  most  important  of  all,  succeeded  in 
getting  his  clerks  interested. 

At  the  present  moment,  the  United  Cigar  Stores  Co.  operates 
1,500  stores  and  700  agencies.  It  is  the  second-largest  chain  in 
the  country,  surpassed  in  size  only  by  the  Great  Atlantic  & 
Pacific  Tea  Co.  The  latest  major  development  in  its  history  was 
its  acquirement  by  the  United  Retail  Stores  Corporation. 
Several  small  chains  were  absorbed  during  the  process  of  develop- 
ment, but,  on  the  whole,  the  progress  has  been  systematic. 
Large  cities  were  chosen  first,  in  which  the  per  capita  consumption 
of  tobacco  was  highest.  Then  smaller  centers  of  population  were 
covered.  As  fast  as  statistics  show  that  a  community  is  able  to 
support  a  United  Cigar  Store,  one  is  established  there. 

There  is  but  one  other  important  company  in  the  tobacco 
retailing  field,  namely,  the  Schulte  Retail  Stores  Corporation. 
In  the  past  few  years  this  company  has  expanded  very  rapidly. 
In  1918,  with  113  stores,  the  company  did  a  business  of  $4,000,000. 
From  the  same  stores,  in  1919,  the  company  took  in  sales  of 
$6,000,000,  in  addition  to  $2,000,000  from  51  stores  opened 
during  the  year,  or  a  total  of  $8,000,000,  or  twice  the  amount 
taken  in  during  the  previous  year. 

The  General  Cigar  Co.  has  77  stores,  25  of  them  in  Chicago. 
In  nearly  all  the  large  cities  of  the  country  there  are  local  chains 
with  branches  running  from  3  to  20.  But  the  independent  stores 
far  outnumber  the  chain  stores  as  yet. 

In  starting  a  tobacco  chain,  the  location  of  the  member  stores 
is  undoubtedly  the  most  important  consideration.  Men  will  not 
go  out  of  their  way  to  buy  standard  brands  which  can  be  procured 


OTHER  CHAIN  FIELDS  387 

anywhere  at  a  standard  price.  Hence  the  corner  location  poUcy 
of  the  United  Cigar  Stores  Co. 

The  second  requisite  for  success  is  an  exceedingly  rapid  turn- 
over. Once  in  30  days  should  serve  as  an  average.  This  is 
necessary  in  retailing  products  on  such  a  narrow  margin  of 
profit.  The  tobacco  field  has  been  particularly  subject  to  cut- 
price  wars  in  the  past,  but,  as  has  been  pointed  out  elsewhere, 
this  policy  rarely  brings  any  actual  advantage  to  the  firms 
concerned. 

Candy,  Confectionery,  Etc. — There  are  some  fields  which  seem 
preeminently  suited  for  manufacturers'  chains,  and  the  candy 
field  is  one  of  these.  A  Huyler  store  on  one  corner  will  not 
materially  affect  the  sales  of  Huyler  candy  in  an  agency  on  the 
next  corner.  Thus  the  great  problem  of  damaging  agency 
sales  does  not  cut  a  great  figure.  In  the  second  place,  a  chain  of 
candy  stores  offers  a  steady  outlet  for  the  company's  products 
which,  from  their  nature,  must  be  disposed  of  within  a 
comparatively  short  time. 

As  a  matter  of  fact,  candy  is  bought  mostly  by  men  and 
wherever  they  happen  to  be  at  the  moment.  Therefore,  loca- 
tion plays  an  essential  part  in  the  success  of  the  candy  chain 
just  as  in  the  tobacco  chain.  The  window  display  is  very  impor- 
tant. Windows  have  to  be  changed  frequently  because  of  the 
perishability  of  the  product.  Many  candy  chains  arrange  new 
displays  daily  except  in  the  case  of  some  special  seasonal  display, 
which  may  remain  a  week.  The  message  which  the  candy 
stores  are  constantly  trying  to  emphasize  is  the  freshness  and 
quality  of  their  products.  In  the  Loft  stores,  for  example, 
candy  is  frequently  displayed  sliced  through  the  middle  to  give 
a  further  effect  of  freshness. 

It  frequently  happens  that  a  number  of  chain  candy  stores 
are  located  close  by  each  other  and  there  is  little  to  choose 
between  the  various  locations.  Assuming  that  the  price  appeal 
is  approximately  the  same,  recourse  must  be  had  to  quality  and 
service.  Attractive  window  displays  and  local  advertising  will 
create  an  atmosphere  of  quality.  Goodwill  may  be  secured  by 
good  service.  A  candy  store  cannot  sell  too  cheaply,  or  the 
quality  will  be  suspected. 

The  principal  chains  in  the  candy  field  are  as  follows : 


388  CHAIN  STORES 

Huyler's 60 

United  Retail  Candy  Stores 25 

Mirror 20 

Loft,  Inc 23 

Schraft's 17 

Page  &  Shaw 17  (10  additional  stores  in 

Canada  and  abroad) 

In  addition,  there  are  a  great  many  other  chains,  too  numerous 
to  mention,  including  Miller  Brothers,  the  Goody  Shops,  Mary 
Elizabeth,  Martha  Washington,  etc. 

Several  chains  operate  lunch  counters  or  serve  light  lunches 
at  tables  in  some  of  their  stores.  Schraft's  and  Huyler's  are  note- 
worthy examples.  This  service  is  only  practicable  in  stores  in 
or  near  shopping  centers.  Page  &  Shaw,  in  addition  to  manufac- 
turing their  own  candy,  also  operate  a  chocolate  factory  and  a 
box  factory. 

Tobacco  and  candy  products  are  fairly  limited  in  range 
compared  with  grocery  and  drug  chains,  but  the  Nedick's 
Orange  Juice  Co.  is  even  more  specialized.  Through  55  stores 
in  and  around  New  York  it  sells  orange  drink  and  nothing 
else  in  the  way  of  a  beverage.  Other  things  have  been  tried,  but 
have  not  proved  satisfactory.  Although  sales  fall  off  in  the 
winter,  they  do  not  care  to  put  in  hot  drinks.  As  a  sideline, 
candy  and  other  miscellaneous  edibles  are  sold. 

The  striking  fact  about  the  conduct  of  the  stores  is  that  the 
stores  are  open  to  the  street.  They  are  display  and  store  in  one. 
A  uniform  finish  in  white  makes  them  easy  to  find.  The  fact 
that  they  are  on  the  street,  that  there  is  no  door  to  open,  no  steps 
to  ascend  or  descend,  has  a  strong  selling  appeal. 

Bakeries. — The  bakery  chain  is  in  many  respects  like  the 
candy  chain.  That  is,  it  is  dependent  on  location  for  its  business 
and,  the  product  being  perishable,  the  problem  of  left-over  goods 
becomes  extremely  important.  Owing  to  the  necessity  of 
supplying  fresh  products  to  the  public,  the  bakery  chain  must  do 
its  own  manufacturing,  in  many  cases  on  the  premises. 

The  Federal  System  of  Bakeries  of  America,  with  approximate- 
ly four  hundred  stores,  is  the  largest  chain  in  the  bakery  field. 
There  are  several  small  local  chains  of  a  few  units  each.  The 
Federal  Bakeries  have  picked  out  desirable  city  locations  where 


OTHER  CHAIN  FIELDS  389 

there  is  a  great  deal  of  traffic,  and  have  capitaHzed  this  situation 
with  attractive  window  displays  and  carefully  conducted  mer- 
chandising campaigns.  By  allowing  the  managers  wide  scope  as 
to  amount  and  size  of  bakings,  choice  of  lines  of  goods  to  sell,  and 
other  local  matters,  the  major  difficulties  have  been  overcome. 
Almost  every  store  is  a  complete  manufacturing  unit.  The  home 
office  at  Davenport,  Iowa,  supplies  material  for  window  displays, 
merchandising  ideas,  formulae,  and  necessary  sales  training  for 
managers.  The  majority  of  the  managers  are  trained  at  the 
company's  own  school. 

The  bakery  field  is  a  difficult  one  since  the  bakery  has  to  con- 
tend constantly  with  the  chain  groceries,  which  also  retail  baked 
goods.  The  success  of  the  Federal  chain,  however,  shows  that  it 
is  possible  to  surmount  these  difficulties  by  proper  attention  to 
chain  store  principles. 

Restaurants. — As  soon  as  we  come  to  the  restaurant  field,  the 
service  problem  is  accentuated.  The  restaurant  is  the  dividing 
line  between  the  two  types  of  chains.  The  restaurant  field  itself 
is  sharply  divided  into  the  service  and  self-service  type.  At 
present,  the  bulk  of  the  restaurant  chains  are  of  the  latter  type, 
approximately  more  nearly  the  original  chain  idea  of  a  series  of 
stores  selling  necessities  to  a  large  number  of  people,  the  sales 
being  based  on  low  price  and  convenient  location. 

In  the  service  restaurants.  Child's  stands  far  in  the  lead. 
But  it  is  a  service  chain  conducted  according  to  all  the  rules  of 
chain  store  practice.  It  insists  on  suitable  locations,  serves 
standard  low-priced  food,  stresses  the  display  features,  etc.  This 
is  directly  contrary  to  the  policy  pursued  by  independent  res- 
taurants, where  a  reputation  for  fine  cooking  or  excellent  service 
will  often  draw  customers  out  of  their  ways. 

The  self-service  lunch  rooms  are  always  located  on  traffic. 
They  will  be  found  near  railroad  stations  to  catch  early  and  late 
traffic,  and  in  the  business  districts  to  catch  business  people 
at  noon.  The  John  R.  Thompson  Co.  in  Chicago  and  the  Wal- 
dorf Lunch  System,  Inc.,  in  Boston  are  the  largest  in  the  field. 
There  are  a  great  number  of  local  and  semi-local  chains  with  from 
three  to  twenty  branches. 

The  Waldorf  System  is  typical  of  the  self-service  restaurant 
chain.     It  operates  over  one  hundred  restaurants  in  over  thirty 


390  CHAIN  STORES 

cities.  The  first  Waldorf  Lunch  was  founded  as  late  as  1904,  in 
Springfield,  Mass.,  with  an  initial  investment  of  only  $1,800. 
The  first  Waldorf  Lunch  in  Boston  was  started  in  1906.  The 
chain's  great  growth  dates  from  1919,  when  the  Waldorf  System, 
with  38  stores  of  its  own,  absorbed  the  Kinney  &  Woodward 
chain,  having  14  stores,  and  the  Baldwin  chain,  having  seven 
stores,  making  a  total  of  59.  In  less  than  two  years  it  added  30 
more  links,  20  of  them  from  the  absorption  of  the  1 1  stores  of  the 
Porter  Capitol  System,  and  nine  from  the  Waldorf  Co.  of  Provi- 
dence, R.  I. 

The  company  has  applied  the  policy  of  standardization  to  the 
retailing  of  food.  The  average  amount  of  every  portion  is  care- 
fully calculated.  For  example,  when  a  customer  orders  hash,  he 
always  gets  the  same  amount.  Each  serving  of  hash  has  been 
carefully  measured  and  done  up  in  waxed  paper  before  being 
sent  to  the  member  stores.  All  baking  is  done  in  the  central 
commissary  which  operates  twenty-four  hours  a  day.  The 
average  meal  during  1920  was  thirty  cents  and  the  company  made 
less  than  two  cents  profit  on  each  meal.  But  during  this  period 
the  company  served  36,000,000  meals,  and  from  this  enormous 
turnover,  it  was  possible  to  make  substantial  profits. 

Hotels. — When  we  discuss  the  hotel  chain  we  come  to  the 
largest  enterprise  which  has  yet  been  attempted  along  chain  store 
principles.  For  example,  the  Hotel  Pennsylvania,  at  New  York, 
the  largest  hotel  in  the  world,  is  a  link  in  the  Statler  chain. 
The  Bowman  chain  operates  many  hotels  in  the  country.  The 
United  Hotels  Co.  of  America  operates  18  hotels  in  the  United 
States  and  Canada.  According  to  the  Hotel  Record,  there  are 
about  one  hundred  so-called  hotel  chain  systems  in  the  United 
States,  operating  as  many  as  three  or  four  hotels  under  the  same 
management. 

Most  of  the  hotel  systems  have  a  common  accounting  and 
purchasing  system.  The  manager  of  each  hotel,  as  is  nat- 
ural, exercises  great  authority  in  the  hiring  of  help,  ordering  of 
supplies,  adjustment  of  complaints,  etc.  But  outside  of  material 
comfort,  the  hotel  chain  must  furnish  one  indispensable  element, 
which  is  service.  We  have  already  seen  how  important  service  is 
in  the  mere  selling  of  commodities.  But  a  great  part  of  the  hotel 
sales  appeal  is  based  on  service,  telephone,  elevator,  mail,  waiter, 


OTHER  CHAIN  FIELDS  391 

almost  everything  the  guest  may  desire.  And  the  excellence  of 
the  service  counts  a  great  deal.  Location,  in  other  words,  is  not 
the  entire  story.  A  guest  will  have  his  favorite  hotel  of  which  he 
will  be  a  steady  patron  as  long  as  the  service  satisfies  him.  The 
management,  therefore,  tries  to  give  uniform  service  in  the  entire 
chain,  so  that  a  guest  going  to  another  city  will  patronize  the 
hotel  owned  by  the  same  chain. 

The  Statler  management  will  accept  no  excuse  for  failure 
to  carry  out  policies  as  explained  in  the  Statler  Service  Codes. 
Discourtesy  is  not  allowed  under  any  circumstances,  even  al- 
though the  guest  be  unreasonable.  For  example,  the  following 
quotation  is  taken  from  the  directions  to  front  office  clerks: 

"Mail  clerks  and  key  clerks  who  recognize  people  and  remember 
their  names  are  more  valuable  to  us  than  others  who  do  not. 

"You  know  that  what  the  guest  wants  (and  is  entitled  to)  is  a  helpful 
and  interested,  as  well  as  a  courteous  service.  You  are  not  through 
with  any  transaction  until  the  guest  is  satisfied;  or,  if  you  cannot  satisfy 
him,  until  you  have  called  your  superior  and  the  matter  is  out  of  our 
hands." 

The  Hotels  Statler  have  considered  it  worth  the  expense  to 
advertise  their  policies  nationally  as  a  means  of  acquainting  the 
public  with  them.  It  is  another  case  of  the  chain  organization's 
ability  to  pick  out  the  fundamental  basis  of  competition  and  use 
it  as  a  sales  appeal. 

Miscellaneous. — The  idea  of  a  chain  organization  has  spread 
also  into  widely  divergent  fields.  But  the  principles  of  operation 
remain  in  all  cases  the  same,  although  the  stress  may  be  laid  on  a 
different  phase  of  the  problem.  There  is  the  theatre  chain, 
Keith  and  Shubert,  and  others.  Here  the  success  of  the  company 
depends  upon  the  character  of  the  amusements  shown.  Loew's, 
Inc.  now  operates  117  theatres.  There  are  numerous  moving 
picture  chains. 

There  are  two  successful  barber  shop  chains  in  New  York 
where  the  chief  problems  are  labor  and  location.  There  is  a 
successful  optical  chain  with  28  stores.  There  are  chains  of 
stores  dealing  in  automobile  accessories. 

In  starting  a  chain  of  enterprises  of  any  sort  the  fundamental 
question  is  whether  it  is  possible  to  apply  the  chain  store  prin- 


392  CHAIN  STORES 

ciples  as  laid  down  in  this  volume.  There  is  great  opportunity 
existing,  not  only  in  old  fields  but  in  new  and  yet  untouched 
fields.  To  capitalize  these  opportunities,  it  is  necessary  to  heed 
carefully  the  methods  and  practices  of  others  who  have  already 
been  successful.  It  has  been  the  purpose  of  this  book  to  set 
forth,  in  so  far  as  possible,  the  primary  rules  to  be  observed  in 
conducting  any  chain  enterprise  as  illustrated  by  the  example 
of  those  who  have  been  most  successful. 


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394  CHAIN  STORES 


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When  the  Chain  Store  Gets  on  the  Avenue,  Edward  T.  Tandy,  Printers' 

Ink  Monthly,  February,  1921. 
Why  a  Buyer's  Market  Hasn't  Changed  Our  Plans,  J.  C.  Penney,  System, 

February,    1921. 
Making  Five  Men's  Wear  Stores  Pay  in  Iowa,  Chicago  Apparel  Gazette, 

Feb.  9,  1921. 

In  Printers'  Ink 

Chain  of  Bakeries  Makes  Study  of  Contact  with  Consumer,  Sept.  29, 

1921,  page  140. 
Why  So  Many  Retailers  Swallow  the  Private  Brand  Argument,  July 

21,  1921,  page  17. 


BIBLIOGRAPHY  395 

Good,  Old-fashioned  Brand  Name  Advertising,  the  Specific  for  Sub- 
stitution, June  30,  1921,  page  3. 
What  the  United  Cigar  Stores  Company  Has  Accomplished  in  Twenty 

Years,  May  19,  1921,  page  17. 
Advertising  Is  Determining  What  Products  the  Chains  Shall  Carry, 

April  28,  1921,  page  136. 
An  Analysis  of  the  Chain  Store  by  Wholesale  Grocers,  April  28,  1921, 

page  177. 
Starting  a  Chain  of  Retail  Stores,  Mar.  31,  1921,  page  25. 
How  to  Combat  "Own  Goods"  Bonus  in  Chain  Stores,  Feb.  24,  1921, 

page  3. 
Should  Manufacturers  Run  Their  Own  Retail  Stores?   No.  1,  Feb.  3, 

1921,  page  3. 
Should  Manufacturers  Run  Their  Own  Retail  Stores?     No.  2,  Feb.  10, 

1921,  page  101. 

1920 

Piggly-Wiggly    Stores:   a   Fast   Growing    Chain    Stores   System,    W.    J. 

Keary,  Financial  World,  Nov.  29,  1920. 
United  Cigar  Stores,  Boston  News  Bureau,  Nov.  5,  1920. 
Great  Atlantic  &  Pacific  Tea  Co.,  Boston  Neivs  Bureau,  July  29,  1920, 

Oct.  23,  1920. 
Piggly  Wiggly,  Dnj  Goods  Economist,  Oct.  2,  1920. 
Chain  Drug  Stores,  The  Druggists'  Circular,  May,  1920. 
Lower  Prices — Higher  Profits,  H.  P.  McBride,  System,  May,  1920. 
J.  C.  Penney  Co.,  Boston  News  Bureau,  May  7,  Oct.  25,  1920. 
J.  C.  Penney  Co.,  Dry  Goods  Economist,  May  29,  1920. 
Co-operative    Merchandising   for   the   Retail    Clothier,    M.    D.    Kobey, 

Chicago,  Apparel  Gazette,  April  7,  1920. 
An  Insight  to  Chain  Store  Methods,  J.  B.  Levey,  The  Haberdasher,  1920. 
United  Retail  Stores  Corporation,  Boston  News  Bureau,  Feb.  16,  Feb.  27, 

1920. 
Meet  Chain  Stores  Half  Way,  The  Haberdasher,  January,  1920. 
The  Chain  Stores,  John  Morrow,  Magazine  of  Wall  St.,  Jan.  24,  1920, 
Schulte  Cigar  Stores,  Tobacco,  Jan.  8,  1920. 

In  Printers'  Ink 

Advertising's  Business  Partner,  the  Well-conducted  Retail  Store,  Dec. 

30,  1920,  page  114. 
Can    Any    One    Plan    of    Marketing    Monopolize    Our    Distributing 

System?  Nov.  18,  1920,  page  26. 
Chain-store  Methods  to  Revive  Dead  Country  Stores,  Sept.  16,  1920, 

page  133. 
Visualizing   the   Magnitude  of  a   Business  with   Chart   Illustrations, 

Sept.  9,  1920,  page  107. 
Even  Doughnut  Holes,  This  Man  Finds,  Can  Be  Advertised,  Aug.  19, 

1920,  page  53. 


396  CHAIN  STORES 

A  Sidelight  on  Landing  the  Big  Customer,  June  10,  1920,  page  93. 
Drug  Chain  Concentrates  Prescription  Business  in  Centrally  Located 

Stores,  June  3,  1920,  page  125. 
Anti-chain  Advertising   Must  Reach  Fundamentals,   May   13,   1920, 

page  145. 
There's  Happiness  in  Every  Box,  May  13,  1920,  page  25. 
The  Chains  and  Local  Advertising,  April  15,  1920,  page  231. 
United  Retail  Stores  Invade  Many  Fields  of  Merchandising,  April  16, 

1920,  page  153. 
National  Campaign  of  Advertising  for  Kresge  Stores,  April  1,  1920, 

page  17. 
The  Winchester  Plan — A  New  Step  in  Standardization,   March  18, 

1920,  page  77. 
A  Chain  Store  Testifies  for  Advertising,  March  4,  1920,  page  178. 
Creating  Business  for  One's  Competitors,  Feb.  26,  1920,  page  188. 
Wanted— Two  Men  of  Vision,  Feb.  19,  1920,  page  180. 
S.  S.  Kresge  Company  Uses  Paid  Advertising,  Feb.  19,  1920,  page  49. 
How  to  Keep  Informed  on  Chain-store  Developments,  Feb.  19,  1920, 

page  44. 
The  Advertising  End  of  the  Chain-store  Problem,  Jan.  29,  1920,  page 

157. 
Is  Collective  Buying  the  Answer  to  the  Growing  Chain-store  Menace? 

Jan.  15,  1920,  page  18. 
New  Rockefeller  and   Whelan   Drug   Chains  Worry   Manufacturers, 

Jan.  8,  1920,  page  65. 

1919 

Is  This  to  Be  the  Era  of  the  Chain  Hat  Store?  The  American  Hatter, 

November,  1919. 
Fifty  Dollars  a  Square  Foot  or  Move,  (Truly  Warner),  The  American 

Hatter,  November,  1919. 

In  Printers'  Ink 

Why  I  Make  My  Employees  Partners,  Oct.  16,  1919,  page  3. 

Chain  Methods  Make  Overhead  an  Investment,  May  29,  1919,  page 

109. 
How  F.  W.  Woolworth  Built  His  Wonderful  Distributing  Machine, 

April  17,  1919,  page  25. 
The  Small  Chain  a  Growing  Market  for  Manufacturers,  April  10,  1919, 

page  101. 
United  Cigar  Stores  May  Operate  Exclusive  Candy  Stores,  March  27, 

1919,  page  20. 
Booklet  to  Celebrate  Woolworth's  40th  Anniversary,  March  6,  1919, 

page  10. 
A  Chain  Store  Man's  View  of  Service,  Feb.  27,  1919,  page  108. 
The  Five-  and  Ten-cent  Store  as  a  Means  of  Sampling,  Jan.  30,  1919, 

page  37. 


BIBLIOGRAPHY  397 

Shall  Service  be  Scrapped  or  Capitalized?  Jan.  23,  1919,  page  6. 

1918 

Big  Business  of  the  Five  and  Ten  Cent  Stores,  American  hidustries, 

Dec.  17,  1918. 
The  Day  of  the  Chain  Store,  Advertising  and  Selling,  May  1918. 
Sebastian  Spering  Kresge,  Harry  Davis,  Magazine  of  Wall  Street,  May  11, 

1918. 
Story  of  the  Chain  Stores,  J.  G.  Donley,  Magazine  of  Wall  Street,  April 

13,  1918. 
The  Piggly  Wiggly  Stores  and  their  Unique  Advertising  Copy,  Jvdidoua 

Advertising,  April,  1918. 

In  Printers'  Ink 

Chain  Stores  or  Exclusive  Agents?  Dec.  19,  1918,  page  163. 

Five-  and  Ten-Cent  Stores  are  now  Boldly  "Trading  Up,"  Dec.  19, 

1918,  page  129. 
I'll  Sell  Anything,  Drug  Chain  Owner  Says,  Sept.  5,  1918,  page  17. 
Fifth  Avenue  Trade  as  Diagnosed  by  the  Woolworth  Co.,  May  30, 

1918,  page  56. 
Tremendous  New  Market  Springs  from  Five-  and  Ten-cent  Expansion, 

May  23,  1918,  page  3. 
How  Liggett  Built  up  the  United  Drug  Co.,  Feb.  21,  1918,  page  90. 

1917 

Man  who  at  Twenty-eight  Suddenly  Had  a  Great  Idea,  (Woolworth) 

F.  A.  Patterson,  American  Magazine,  October,  1917. 
Systematizing  Window  Displays  for  Chain  Drug  Stores,  F.  A.  Koijane, 

American  Druggist,  August,  1917. 
Consumer  and  the  Chain  Grocery  Store,  C.  F.  Adams,  Outlook,  Jan.  24, 

1917. 

In  Printers'  Ink 

In  Piggly-Wiggly  Stores  the  Product  Has  to  Sell  Itself,  Dec.  20,  1917, 
page  17. 

Philadelphia  Jobbers  and  Retailers  to  Meet  Chain-store  Methods, 
Oct.  25,  1917,  page  37. 

Methods  of  the  Man  Who  Founded  Chain  of  3,500  Stores,  Sept.  13, 
1917,  page  83. 

Chain  Stores  Advertise  as  Economy  Measure,  Aug.  9,  1917,  page  119. 

Higher  Priced  Goods  in  Variety  Stores  Mean  Bigger  Outlets  for  Manu- 
facturers, May  31,  1917,  page  3. 

Chains  Making  Independents  Better  Merchants,  April  5,  1917,  page 
101. 

Increase  of  SeUing  through  Irregular  Channels,  March  29,  1917,  page 
71. 


398  CHAIN  STORES 

Does  the  Consumer  Really  Want  Service,  After  All?  March  29,  1917, 

page  93. 
Why  Woolworth  Is  Starting  a  Store  on  Fifth  Avenue,  Feb.  15,  1917, 

page  65. 
New  Light  on  the  Small  Store  versus  the  Big  Store,  Jan.  18,  1917,  page 

94. 

1916 

Big  Dreams  that  Came  True,  H.  Rood,  Everybody's,  November,  1916. 
Five  and  Ten  Cent  Store  Costs,  System,  June,  1916. 
How  I  Watch  the  Sales  of  a  Chain  of  1,000  Stores,  Geoi^e  A.  Whelan, 
System,  May,  1916. 

In  Printers'  Ink 

How  Shall  the  Advertiser  Regard  the  Newly  Forming  Chains?  Dec.  28, 

1916,  page  88. 
United  Cigar's  National  Advertising  Doubles  Ricoro  Sales,  Dec.  14, 

1916,  page  3. 
Chain-store  Romance  and  Reahty,  Oct.  12,  1916,  page  136. 
Hosiery  Store  Shows  which  Way  the  Wind  is  Blowing,  Oct.  5,  1916, 

page  8. 
Jobber  Advertises  to  Offset  Chain-store  Competition,  Aug.  24,  1916, 

page  100. 
A  Mail-Order  Business  that  Proved  the  Stepping-stone  to  a  Women's 

Specialty  Chain,  Aug.  10,  1916,  page  45. 
How  Penney  Chains  Find  and  Train  Profit-Making  Partners,  May  4, 

1916,  page  41. 
The  New  Regal  Policy  of  Dealer  Co-operation — April  20,  1916,  page  41. 
United    Drug    Company's  New   Premium  Plan — February  24,  1916, 

page  131. 
The  Chain  Store  a  Tonic  with  the  Advertisers'  Help,  Feb.  17,  1916, 

page  45. 
How  Jewel  Tea  Co.  Built  Resources  of  $16,000,000  in  Sixteen  Years, 

Feb.  3,  1916,  page  17. 
A  Chain  Store  Man  on  the  Chances  of  the  Independent  Retailer,  Jan. 

27,  1916,  page  38. 

1916 

The  Chain  Stores,  Barnard  Powers,  Magazine  of  Wall  Street,  November, 

1915. 
Whelan — Millionaire  statistician,  K.  Banning,  System,  January,  1915. 

In  Printers'  Ink 

How  a  Woman  Built  a  Million  Dollar  Chain  of  Stores,  Dec.  16,  1915, 

page  11. 
Building  Big  Mail-order  Business  on  Retail  Chain  Foundation,  Dec.  9, 

1915,  page  3. 


BIBLIOGRAPHY  399 

Chain  Stores  Find  the  West  a  Difficult  Field,  Oct.  28,  1915,  page  93. 

Grocery  Chain  Store  Practices,  Oct.  14,  1915,  page  58. 

How  the  Site-buyer  for  United  Cigar  Stores  Works,  Sept.  2,   1915, 

page  68. 
Campaign  for  a  Five-  and  Ten-cent  Store  Chain,  June  17,  1915,  page  46. 
Kresge  Chain  Reaching  Out  for  Business  by  Mail,   May  20,   1915, 

page  70. 
The  Five-  and  Ten-cent  Store  Outlet  for  Advertised  Products,  Jan. 

14,  1915,  page  3. 

1914 

Rapid  Increase  of  Chain  Stores,  Current  Opinion,  December,  1914. 
James  C.  Penney,  F.  C.  Henderschott,  System,  June,  1914. 
Money  Sticking  Out,  Edward  M.  WooUey,  McClure's  Magazine,  January, 
1914. 

In  Printers'  Ink 

Manufacturers  Forced  to  Start  Chain  Stores,  Dec.  31,  1914,  page  69. 

Government  Investigating  the  Chains,  Dec.  10,  1914,  page  84. 

Chain-store  Trading  in  England,  Oct.  1,  1914,  page  75. 

Kellogg's  Fight  on  Chain  Stores,  Sept.  17,  1914,  page  23. 

The  Future  of  the  Chains,  Sept.  17,  1914,  page  75. 

Whelan  Plans  to  Get  Prosperity  Here  Double  Quick,  Sept.  3,  1914, 

page  84. 
What  Do  You  Know  about  Chain  Stores?  July  23,  1914,  page  140. 
How    Riker-Hegeman    is    Generating    Power    for    Rapid    Expansion, 

July  9,  1914,  page  3. 
Copy  that  Boomed  a  Chain  of  Restaurants,  June  11,  1914,  page  82. 
Inside  Look  into  One  Chain-store  System,  June  4,  1914,  page  45. 
Competitive  Tactics  of  Chain  Stores,  April  9,  1914,  page  82. 
No  Monopoly  of  Good  Business  Methods,  Feb.  12,  1914,  page  89. 
Chain  Store  Series  (Fourteen  Articles),  Sept.  10-Dec.  24,  1914. 

1913 

Retail  Chain  Store  Evolution,  Printers'  Ink,  Aug.  7,  1913. 

Chain  Stores,  R.  A.  Bruce,  Printers'  Ink,  July  10,  17,  31,  Aug.  7,  1913. 

F.  W.  Woolworth's  Story,  Leo  L.  Redding,  World's  Word,  April,  1913. 

1912 

The  Tower  of  Nickels  and  Dimes,  Hearst's  Magazine,  October,  1912. 
Chain  Store  Economies  Practicable  in  Many  Lines,  John  H.   Hanan, 
Printers'  Ink,  Mar.  21,  1912. 

1911 

Welding  First  Links  in  a  chain  store  system,  John  P.  Wilder,  Printers' 

Ink,  Dec.  7,  1911. 
Gigantic  Woolworth  Chain,  Printers'  Ink,  Nov.  16,  1911. 


INDEX 


Acme  Cash  Basket  Stores,  93 
Acme  Tea  Company,  19 
Advertised  lines,  80 
Advertising,  active  and  passive,  171 

agency,  176 

allowance  for,  166 

appeal,  171 

cooperative,  177 

copy,  176 

department,  165 

determined  in  conference,  166 

financial,  306 

influence  of  location,  34 

institutional,  171 

local,  176 

media  of,  167 

merchandise,  174 

movement  towards,  167 

newspaper,  165 

personnel,  165 

policies,  176 

preliminary,  169 

price,  176 

principles  of,  176 

profit  from,  166 

results  of,  167 

standardization  of,  176 

tendencies,  164 
Agency,  advertising,  176 

problem  of  for  chain,  324 
American  Stores  Company,  27,  76, 
334 

price  policy,  136 
Annual  report  from,  292 
Appearance  of  store,  69,  70 
Arkins,  F.  J.,  137,  208 
Arrangement  of  stock,  61 
uniformity  in,  62 
26  401 


Arrangement  of  warehouse,  88 
Authority  of  store  manager,  235 


B 


Bakery  chains,  388 

Banking  methods  of  chain  stores,  238 

Beckmann,  A.  H.,  339 

Bedell  Company,  382 

Bond,  cash  for  manager,  238 

Bonding  of  employees,  316 

Bonus,  for  low  expenses,  151 

forms  of,  196 

on  inventory,  152 

to  girls  in  five  and  tens,  216 

to  personnel,  189 
Book,  cash  receipts,  275 

cost  record,  250,  254 
Branch,  definition  of,  3 
Brands,  advertised,  8 

manufacturers',  14 

opposition  to,  120 

private,  80 

reasons  for  pushing,  121 
Brewster,  Kingman,  302 
Browning,   King  &  Company,   321, 

322,  382 
Bulk  articles,  tendency  away  from, 

118 
Bulletins,  character  of,  223 

daily,  222,  223,  254,  265 
Bureau  of  Personnel  Research,  199 
Bushnell,  George  H.,  150 
Business  conditions,  effect  on  sales, 

104 
Butler  Brothers,  135 
Butler,  James,  19 
Buyers,  authority  of,  80 

expert,  78 

importance  of,  78 


402 


INDEX 


Buyers,  keep  cost  record  books,  250 

opportunities  to  help  manufac- 
turers,   82 

policy  of,  79 

sources  for  executive  informa- 
tion, 283 
Buying,  ahead,  77 

cash,  77 

habits,  51 

offices  in  New  York,  79 

policies,  79 


Candy  chains,  importance  of  loca- 
tion, 387 

number  of,  388 

reasons  for,  387 
Capitalization,  form  of,  298 
Cards,  stock  record,  91,  247 
Cash  and  carry  policy,  advantages 
of,  153 

tendency  towards,  22,  117 
Cash  purchasing  by  chain,  76 
Cash  receipts  book,  275 
Chain  buyer  (see  Buyer). 
Chain  Shirt  Shops,  320,  378 
Chain  stores,  cash  and  carry,  22 

competition,  117,  124 

definition,  3 

financing  of,  296 

growth  of,  40 

importance  of  product,  26 

influence  of  the  War  on,  135 

insurance  for,  311 

local,  22 

location,  34 

manufacturers',  318 

manufacturing  by,  29 

national,  20 

principles  of,  3 

real  estate  department  of, 
33 
,  safeguard  against  monopoly, 
119 

sectional,  21 


Chain  stores,  self-service,  23 

tendency  to  combine,  26 
Chamber  of  Commerce  of  the  United 

States,  138 
Change,  of  price  method,  254 

sheets,  266 
Charlton,  Earle  P.,  366 
Childs,  description  of,  389 

Fifth  Avenue  store,  53 

profit  from  advertising,  167 
Christmas,    influence,    of    on  sales, 

99 
Cigar  stores  (see  Tobacco  chains). 
Clerks,  importance  of,  183 

payment  of,  190,  193 

sales  policy  of,  206 

wage  rates  of,  194 
Clothing  chains,  382 
Codes,  price,  90 
Colgate  &  Company,  83 
Combination,  tendency  towards,  16, 

123 
Comparative  statements,  292 
Competition,  analysis  of,  128 

bases  of,  124 

character  of,  117 

price,  134 
Concessions,  59 

Confectionery  Merchandising,  170 
Conferences,  importance  in  morale, 

222 
Connor,     John     T.     Company,     22 
Contests,  222,  224 
Contingent  fund,  196,  239 
Control,  executive,  283 

methods  of,  13 
Conventions,  222 
Cooperation,  of  managers  and  clerks, 

194 
Cost  keeping,  250 

of  doing  business,  147 
Costs  of  chain  stores,  148 
Counter  cards,  68,  166 
Counter  display,  67 
Courtesy,    necessity    of    in    making 

sales,  200 
Credit,  elimination  of,  149,  153 


INDEX 


403 


D 


Daily  bulletin  (see  Bulletin). 
Daily  executive  report,  284 
sales  fluctuations,  103 
stores  report,  272 
Decker,  Chas.  M.  Brothers,  22 
Definitions,  3 
Deliveries,  elimination  of,   149,   153 

to  stores,  89 
Dennison  Manufacturing  Company, 

320 
Departments,  advertising,  165 
employment,  205 
grouping  of,  62 
personnel,  198 
premium,  113 
purchasing,  79 
real  estate,  42 
Direct  purchasing,  74,  127 
Discipline,  definition  of,  229 
Display,  as  basis  of  competition,  125 
counter  (see  Counter), 
principles  of,  63 
standardization  of,  208 
window  (see  Window  display). 
Distribution  of  capital  stock,  303 
Dividends  from  chain  stores,  298 
Dotson-Kerwin  stores,  107 
Douglas  Shoe  Company,  168 
advertising  of,  174 
selling  policy  of,  322 
Dow  Drug  Company,  209,  343 
Drug  store  chains,  advertising  of,  316 
analysis  of,  345 
commission      on      private 

brands,  194 
daily  reports,  240 
growth  of,  345 
influence  of  product,  361 
location,  360 
number  of,  342 
of  items  carried  in, 
105 
overhead  of,  150 
policy  of  locating,  34 
prescription  policies.  111 


Drug  store  chains,  turnover  require- 
ments for,  142 
Drug  Store  Merchandising,  209,  213 
Druggists  Circular,  346 
Drygoods  chains,  374 

decentralized  control,  375 

types  of,  375 
Dry  Goods  Economist,  336 


E 


Earnings  of  chains,  298,  299 
Easter,  influence,  of  on  sales,  101 
Editor  of  house  organ,  228 
Employees  (see  Personnel). 
Employment  department,  205 
Equipment,  extra,  60 

manufacture  of,  60 

standardized,  60 
Executive,  functions  of,  183,  184 

information,  186,  284 

reports,  186 
Expense,  bonus  for  low,  151 

eliminated,  153 

items  of,  149 

keeping  down,  151 


Federal  Bakeries  of  America,  bulle- 
tins of,  224 

carry-over  problem  of,  103 

contests  of,  225 

cooperative  sales,  113 

equipment  of,  60 

interior  of,  60 

novelty  products.  111 

number  of  stores,  388 

window  display  of,  66 
Fifth  Avenue  Association,  53 
File,  temporary  invoice,  260 
Filling  requisitions,  90 
Financial  advertising,  306 
Financial  responsibilities  of  manager, 

238 
Financing,  methods  of,  304 

necessitated  by  growth,  302 


404 


INDEX 


Financing,  out  of  earnings,  303 
principles  of,  296 
small  chain,  302 
Fire  insurance,  310 
Five  and  ten  cent  chains,  abandon- 
ment of  ten  cent  limit, 
75,  155 
activity     at     Christmas, 

100 
authority     of     manager, 

237 
bonus  system  for,  216 
characteristics  of,  363 
field  of,  363 
freedom  from  depression, 

104 
hours,  370 
labor    problem   of,    193, 

368 
location  of,  39 
methods  of  display,  63 
methods  of  remunerating 

personnel,  189 
monthly  sales  of,  100 
net  earnings  of,  155 
policies  of,  366 
price  problem,  144 
products  for,  108 
purchasing     policies     of, 

75,  80 
rate  of  turnover,  141 
salesmanship  in,  195 
seasonal  fluctuations,  101 
size  of,  60 
stock    problem    of,    106, 

373 
wages  in,  368 
Fluctuations  in  sales,  daily,  103 

seasonal,  100,  102 
Front,  standardized  store,  59 
Functions  of  executive,  183 
Future  dating,  76 

G 

General  Cigar  Company,  386 
Gilmers,  Inc.,  28,  377 
Ginter  Company,  335 


Goodwill,  basis  of  competition,  125 
employee,  230 
necessity  of,  169,  170 
value  of,  125 
Gotham  Hosiery  Company,  320,  321, 

323 
Great  Atlantic  &  Pacific  Tea  Com- 
pany, founding  of,  19 
growth  of,  124,  332 
manner  of  growth,  41 
national  scope  of,  20 
private  brands,  120 
sales  fluctuations,  103 
small  stock  holdings,  304 
Grocery  chains,  accounting  for,  268 
authority  of  manager  in,  237 
business,  precarious  nature  of, 

119 
cost  of  doing  business,  152 
degrees    of    standardization, 

337 
field  of,  330 
growth  of,  332 
history  of,  334 
jobber  and,  340 
location  of,  38,  338 
loss  leaders,  110 
manufacturers'  attitude,  339 
methods  of  paying  personnel, 

190 
net  profits  of,  156 
number  of,  330 

of  items  carried,  105 
purchasing  policy,  78 
quality,  331 

restricted  products  type,  331 
seasonal  fluctuations  in,   102 
self  service  type,  331 
size  of,  58 

stock  problem  of,  120 
tendency    towards    packaged 

goods,  108 
warehouse  inventory,  93 
Gross  profit,  definition,  134 
Growth,  financial,  297 
of  chain  idea,  302 
principles  of,  14,  40 


INDEX 


405 


H 


Haberdasher,  The,  379 
Haberdashery  chains,  377 
Hamburger,  Mort,  103 
Hanan  Shoe  Company,  19 
Handbills,  advertising  methods,  180 
prepared  by  advertising  depart- 
ment, 166 
use  of,  168 
Hartford,  George  H.,  19,  120,  187, 

334 
Hat  chains,  characteristics  of,  382 

number  of,  381 
Hotel  chains,  390 
Hotel  Record,  The,  390 
House  organ,  editor  of,  228 
policy  of,  228 
requisites  of,  227 
Huyler's,  387 


Ideas,  obtaining  sales,  215 
Independent  store,  aversion  to  chain, 
117 
basis  of  competition,  124 
gross  profit  of,  156 
inability      to      purchase      in 

quantity,  127 
position  of,  118 
Information,  obtaining,  186 
Inspectors,  functions  of,  206,  214 
Institutional  advertising,  171 
Insurance,  automobile,  315 
broker,  309 
building,  311 
burglar,  315 
definition  of,  309 
employers'  liability,  314 
fire,  310 
group,  315 
hold  up,  315 
plate  glass,  314 
policies,  313 
real  estate,  311 
rent,  312 


Interest  charges,  138 
Inventory,  book  value  of,  253 

made     by     traveling     superin- 
tendent, 187 

periodic,  276 

perpetual,  91 

physical,  92,  253 

sheet,  276 

warehouse,  91 
Investment,  profits  on,  138 
Invoice,  temporary,  260 


Jacobs  Pharmacy  Company,  360 

Jobber,  grocery,  340 

tendency  to  eliminate,  74 
warehousing  function  of,  86 

Jones  Tea  Company,  19 

K 

Keller,  D.  C,  209 

Kirby,  F.  M.,  366 

Knox,  S.  H.,  366 

Kresge,  S.  S.  Company, 
earnings  of,  299 
growth  of,  19,  124 
history  of,  300 
policy  of,  371 

Kress,  S.  H.  earnings  of,  299 

Kroger,  B.  H.,  126,  335 

Kroger  Grocery  &  Baking  Company, 
history  of,  335 
increase  in  sales,  297 
number  of  items  carried,  105 
policy  of  store  appearance,  70 
purchasing  policy,  75,  76 
sectional  character  of,  22    . 


Labor  problem,  193 
Law  of  average  sale,  157 
Letters  to  personnel,  222 
Library  Bureau,  320,  322 


400 


INDEX 


Liggett,  Louis  K.  Company,  gro\\'th 
of,  343 

history  of,  343 

receipts,  360 

sectional  character,  20 

substitution  in,  122 

turnover  poHcy,  142 
Lines,  number  carried,  107 
Lists,  price,  265 
Locality,  as  basis  of  competition,  126 

future  of,  35 

influence  of,  35 

warehouse,  86 
Locations,  city,  40 

experts  in,  42 

importance  of,  33 

of  goods  carried  in  stock,    61 

principles  of,  4,  34 

quality,  53 

suburban,  40 
Loews,  Inc.,  391 
Loft,  Inc.,  387 
Loss  leaders,  109,  132 


M 


Management,   as  basis  of  competi- 
tion, 126 
Managers,  authority  of,  235 
choice  of,  233 
district,  186 
duties  of,  235 

financial  responsibilities  of,  238 
judged  by  results,  203 
knowledge  of  stock,  239 
local  purchasing,  136 
responsibilities  of,  237 
salaries  of,  190 
setting  quotas  for,  143 
shifting,  204 
Manufacturers  and  chain  stores,  81 
Manufacturers'    chains,    accounting 
for,  327 
advantages  of,  318 
advertising  for,  328 
brands,  328 
definition  of,  318 


Manufacturers'  Chains,  disadvant- 
ages, 321 
organization  of,  322 
price  cutting,  328 
problem  of  personnel,  325 
purchasing  for,  327 
sales  policies,  327 
Manufacturing  by  chain  stores,  29 
Mark  down,  138 
Mark-up,  basis  of,  143 

control  of,  132 

definition,  132 

voucher,  255 
Mayflower  Stores,  22 
Media  of  advertising,  167 
Member  stores  (see  Stores). 
Men  (see  Personnel). 
Men's  wear,  77 
Men's   wear   chains,    discussion   of, 

377,  378 
Merchandising  policies,  5,  109 
Mergers  of  chain  stores,  26 
Merrill,  Charles  E.,  143 
Merrill,  Lynch  &  Company,  143,  304 
Methods  of  display,  63 

of  pricing,  134 
Metropolitan  Stores,  Inc.,  61 
Miller-Strong  Drug  Company,  343 

360 
Model  store,  207 
Monop)oly,  impossibiUty  of,  119 
Montgomery  Ward,  299 
Morale,  definition  of,  220 

elements  of,  220 

enforcing,  229 

importance  of,  12 

influence  of  on  disciphne,  230 

methods  of  creating,  221 

nature  of  good,  229 
Mykrantz  Company,  343 

N 

National  advertising,  167 
National  chains,  20,  86 
National  Drug  Stores,  110,  342 

growth  of,  342 

personnel  records,  203 


INDEX 


407 


National  Drug  Stores,  requisites  for 

managers,  234 
National  Hosiery  Stores,  382 
Nedick's  Orange  Juice  Company,  388 
Net  profits,  134 

Newspaper  advertising,  importance 
of,  165 
results  of,  168 
use  of  space,  169 
NichoUs,  Charles  Jr.,  35,  39,  50 

George  A.,  170 
Number  of  lines  carried,  107 


O 


Office  manager,  source  of  executive 

information,  283 
One  cent  sales,  109 
Organization,  of  chain  stores,  25 

purchasing,  73 
Overbuying,  evils  of,  138 
Overhead,  cutting  down,  151 

variations  in,  150 
Owl  Drug  Company,  360 


Packaged  goods,  tendency  towards, 
108 
saving  from,  108 
Packages,  importance  of  for  display, 

67,  68 
Parson,  Hubert  T.,  366 
Pasters,  67 
Pearson,  A.  C,  166 
Peck,  Carson  H.,  366 
Penney,  J.  C,  76 

Penney,    J.    C.    Company,    banking 
policy  of,  238 
date  of  founding,  19 
financing  of,  302 
increase  in  sales,  297 
method  of  growth,  41 
of     remunerating     personnel, 

191 
of  securing  managers,    234 
operating  expense  of,  148 
overhead  of,  150 


Penney,  J.C.  Company,  policy  of,  375 

purchasing,  77 

rate  of  turnover,  141 

real  estate  policy,  33 

stock  distribution,  191 
People's  Drug  Stores,  168 
Per  capita  consumption  of  tobacco, 

40 
Perpetual  inventory  {see  Inventory). 
Personnel,  administration,  198 

basis  of  competition,  126 

bonding  of,  316 

character  of,  183 

department,  198 

methods  of  paying,  195 

morale  of,  221 

principles  of,  11 

recruiting,  204 

remunerating,  188 

tests,  199 

training,  206 
Piggly  Wiggly  Company,  absence  of 
window  trim,  69 

advertising  of,  167,  173 

arrangement  of  store,  62 

branded  goods  only,  81 

color  scheme  of  exterior,  60 

description  of,  23 

display  features  of,  63 

growth  of,  336 

methods  of  remuneration,   190 

operating  costs  of,  148 

policies,  336 
Plate  glass  insurance,  314 
Policies,  insurance,  313 

merchandising,  109,  127 

promotion,  186 
Policing  of  retail  outlets,  268 
Population,  movement  of,  41 
Premiums,  redemption  of,  114 

use  of,  113 
Prestige,  importance  of,  138 
Price,  at  which  goods  are  l^illed  to 
stores,  134 

at  which  products  shall  be  sold, 
131 

basis  of  competition,  127 


408 


INDEX 


Price,  of  sales  policy,  108 

changes,  254 

codes,  90 

cutting,  136,  140 

lists,  265 

range,  135 

tags,  63 
Pricing,  methods  of,  134 

principles  of,  8 

retail,  134 

theory  of,  132 

uniform,  264 
Principles,  of  growth,  14 

of  promotion,  201 

of  purchasing,  6 

operating,  3 
Printing  plant,  165 
Private  brands  {see  Brands). 
Products,  imp)ortance  of  in  display, 
108 

influence     on      manufacturers' 
chains,  324 

number  of,  105 

rules  governing  choice  of,  105 

salesman's  knowledge  of,  209 

sold  by  chain  stores,  25 

tangible  and  intangible,  104 
Profits,  calculating,  279 

determination  of,  131 

due  to  frequent  turnover,  139 

fluctuations  in,  156 

gross,  134 

individual  store,  156 

methods  of  increasing,  157 

miscellaneous,  160 

net,  134,  154 

percentage  of,  140 
Promotion  policies,  12,  186,  201 
PubUcity,  varieties  of,  171 
Purchaser,  type  of,  39 
Purchasing,  advance,  77 

basis  of  competition,  129 

cash  policy,  76 

local,  80 

principles  of,  6 

process  of,  259 

records,  245 


Purchasing,  seasonal,  78 

tendency  towards  direct,  73 

Q 

Quality,  necessity  of,  107 
standardized,  108 

R 

Real  estate  departments,  33,  42 
Receipts,  banking  of  cash,  238 
Records,  14 

daily,  186 

personnel,  202,  204 

purchasing,  245 

sales,  7 

warehousing,  245 
Regal  Shoe  Company,  69,  322 

agency  policy  of,  324 

merchandising  of,  326 
Rent,  as  item  of  expense,  149 

insurance,  312 

ratios,  50 

weekly,  287 
Reports,  annual,  292 

contents  of,  285 

daily,  240 

executive,  186,  284 

managers',  240 

promptness  in  making  up,  284 

store,  272 

weekly,  287 
Reputation  of  chain,  138 
Requisitions,  blanks,  90 

filling  in,  90 
Restaurant  chains,  389 
Retailer,     independent     {see     Inde- 
pendent). 
Rewards  for  employees,  227 


Salaries,  138 

as  item  of  expense,  148 
relation  to  overhead,  151 

Sale,  law  of  average,  157 


INDEX 


409 


Sales,  equalizing  clerk,  203 

fluctuations,  103 

forcasts  of,  103 

influence  of  weather  on,  103 

novelty,  113 

one  cent,  109 

people  {see  Clerks). 

policies,  127 

problem,  99 

records,  7 

seasonal,  110 

special,  103 
Salesmen,  training  of,  206 
Saunders,  Clarence,  336 
Salvage,  account,  257 

vouchers,  257 
Sampling,  82,  372 
Sam  Seelig  Stores,  58,  140 

bonus  system  of,  152 
Schedule  for  counting  stock,  248 
Scholtz  Mutual  Company,  360 
Schulte  Retail  Stores  Corporation, 

386 
Sears  Roebuck  and  Co.,  299 
Seasonal  peaks,  102 

purchasing,  78 

sales,  110 

fluctuations,  99 
Sectional  chains,  20 
Self  service  stores,  23 
Service,  rules  of,  213 

selling,  213 

standardization  of,  206 
Sherwin-Williams  Company,  323 
Shifting  men,  204 
Shoe  chains,  382 
Shoes,  methods  of  selling,  383 
Singer  Sewing   Machine   Company, 
advertising   policy  of,    167 

sales  policy,  322,  326 

stock  ownership  of,  304 
Sites,  establishing  value  of,  35 
Size,  of  store,  57 

of  warehouse,  87 
Sizes,  odd,  107 

of  product,  107 

staiKlardization  of,  107 


Spalding,  A.  G.  &  Brothers,  322 
Specialists,  188 
Standard,  of  quality,  81 

price,  35 
Standardization,  30,  58,  70 
Staples,  inert  character  of,  140 
Statements  of  comparison,  292 
Statler,  hotel  chain,  391 
Stewart,  Albert  I.,  152 

A.  T.,  137 
Stock,  appearance  of,  69,  70 

arrangement  of  in  store,  61 

arrangement  of  in   warehouse, 
88 

counting  of,  248 

knowledge  of,  239 

record  card,  91,  247 
Store,  color  of,  60 

entrance,  41 

front,  59 

model,  207 

profits,  156 

size  of,  57 

training  clerks  for,  211 
Streets,     importance     of     different 

sides,  39 
Substitution,  abolition  of,  120 

definition  of,  121 

investigation  of,  122 
Summer,  influence  of,  on  sales,  19 
Summerfield,  S.  E.,  320 
Sun-Maid  Raisin  Company,  113 
Superintendents,  function  of,  186 

qualifications  for,  187 
Swanton,  R.  C,  132,  137 


Teamwork,  230 
Tests,  for  personnel,  199 
Theatre  chains,  391 
Tobacco  chains,  385,  386 

per  capital  consumption  of, 
40 
Trading  stamps,  use  of,  1 14 
TraflSc,  analysis  of,  36 


410 


INDEX 


Traffic,  direction  of,  38 

movement  of  in  store,  62 

sex  of,  38 

volume  of,  38 
Training  men,  12,  206 
Turnover,  analysis  of,  137,  138 

basis  of  competition,  128 

definition  of,  131,  137 

increasing,  140 

keeping  up,  137 

minimum,  141 

principles  of,  8 

rate  of,  131,  136,  141  142 

securing  in  all  lines, 

waste  due  to  slow,  138 
Types  of  chain  stores,  19-26 

U 

United  Cigar  Stores  Company,  addi- 
tional lines  carried,  106 

aim  to  cut  gross  profits,  155 

clerk  policy  of,  213 

date  of  founding,  19 

distribution  of  seasonal  peaks, 
102 

district  managers,  186 

Fifth  Avenue  store,  53 

history  of,  386 

location  of,  34,  40 

manner  of  growth,  41 

merger,  28 

methods  of  remuneration,  189 

national  scope,  20 

premium  department  of,  113 

promotion  policy,  184,  202,  203 

rate  of  turnover,  141 

real  estate  policy  of,  50 

rewards  for  service,  227 

size  of  member  stores,  58 

standard  price,  136 

standardized  front,  59 

traffic  analysis,  36 

turnover  policy,  143 

window  display,  64 
United  Drug  Company,  30 

national  advertising  of,  168 

private  brands  of,  121 


United  Retail  Candy  Stores  Corp- 
oration,   formation    of,    28 
effect  on  Cigar  Stores,  106 
method  of  advertising,  170 
United    Retail    Chemists'    Corpora- 
tion, 342 
United    Retail    Stores    Corporation, 
description  of,  29 
merger,  28 
monopoly,  119 
United  Shirt  Shops,  378 


Voucher,  salvage,  257 
W 

Wages,  138,  194 

Waldorf    System,    Inc.,    advertising 
of,  171,  306 
description  of,  389 
Walgreen  Company,  213 
Warehouse,  location  of,  86 

mark-ups  and  mark-downs,  254 
maximums  and  minimums,  93 
size  of,  87 

superintendent's       duties,       88 
Warehousing,  principles  of,  7,  86,  96 

records,  245 
Warner  Brothers  Company,  321,  323 
Waste  due  to  slow  turnover,  138 
Waterman  Fountain  Pen  Company, 

320 
Wattley,  Ralph  B.,  110,  234 
Weather,  influence  of  on  sales,  103 
Weekly  change  sheets,  266 

specials,  109 
Whelan,  George  J.,  4,  40,  58,   186, 

213,  227 
Wholesale  prices  to  stores,   134 
WiUiams,  Carl  O.,  93 
Winchester  Stores  Company,  30,  132 
Window  display,  of  model  store,  208 
organization  of,  64 
principles  of,  67 
types  of,  66 
Window  trimmers,  165 
Windows,  importance  of  clean,  69 


INDEX 


411 


Women,  training  of,  in  chain  stores, 

215 
Woodworth,  R.  S.,  220 
Woolworth,    Frank    W.,    109,    126, 

144,  233,  365 
Woolworth,  F.  W.  Company,  daily 
sales  of,  103 
date  of  founding,  19 
distribution  of  stores,  20 
Fifth  Avenue  store,  53,  62 
growth  of,  123 
history  of,  365 

maintenance  of  ten  cent  limit, 
75,  135 


Woolworth,  F.  W.  Company,  manner 
of  growth,  41 

manufacturing  policy  of,  371 
merger,  26 

methods  of  remuneration,  188 
monthly  sales,  100 
national  scope  of,  20 
net  earnings  on  sales,  155 
promotion  policies,  201 
purchasing  policies,  75 


Yawman  &  Erbe,  320 
Yoakum,  C.  S.,  199 


//3 


THE  LIBRARY 
UNIVERSITY  OF  CALIFORNIA 

Santa  Barbara 


THIS  BOOK  IS  DUE  ON  THE  LAST  DATE 
STAMPED  BELOW. 


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Series  9482 


A     000  733  152     3 


